Members | Support This Site | Logout

Home   Newsletter   Tutorials   Columns   Articles

Getting Paid On Your Sales Faster

A huge, massive, and ultimately the mistake that destroyed my IT consulting business was getting the money. I didn't have any trouble finding and converting prospects, nor setting up large margins, however, getting paid was a big problem from 1996 to 1999. Are you interested in getting paid faster, with less hassle and lower overhead?

Now I hear some of you saying, "Getting paid is a receivables issue, not a sales or marketing issue." When I noticed one of my clients facing this same problem they told me, "Don't worry about the collections part, it won't be an issue if we can sell more!"

Let me tell you right now, getting your money has to do more with sales and marketing than you could ever imagine. This misconception is why I and many people have trouble with this and are struggling in the business-to-business world.

In the consumer world, if credit is extended it's handled by some third party. For B2B, credit is expected, yet held by your organization. This puts you in the financing business. You're probably invoicing your customers, even flooring inventory in your sales channels.

My mentor pointed out that I was hardly collecting 1 invoice in 10 from my current outstanding receivables. He demanded I eliminate having any receivables at all. I gave the usual objection, "Thing might be different in the insurance business, my business is different, I need to extend credit to get contracts. My customers expect to pay in terms."

The truth was, my clients were getting free labor because they weren't always paying. This made more sense when my mentor explained, (a) you are not a bank, and (b) who said you had to extend credit.

This all might make more sense today with current foreclosure rates and the credit crunch, but this was the raging 90's. Here's what my mentor suggested to turn around my bottom line:

• Only extend credit to clients to the extent of 1/2 collected margins. This didn't make any sense until it was explained that is mitigates risks while rewarding great customers.
• Require a 50% deposit at contract closing. I still follow this today, it provides enough to get a project started. You can place these funds in escrow, make them non-refundable, or place them in bond.
• Partner with a bank for leasing and finance deals. With leasing I could explain in the sales process the "options" available, which actually helped improve closing on hardware sales. If a client can't get funding they weren't going to pay you either.
• Only do business with people who have excellent credit. I continued to do business with those who had no credit under the condition they placed an 80% deposit in escrow. There were exceptions to this, however, be very careful.
• Outline a strong collection policy upfront and stand behind it. I hired a collections person armed with my three step collections plan which will be detailed elsewhere. This aging based plan clearly defined what happened if a client didn't pay.
• Use a risk scale for rates to cover possible loses. As clients did more business with my firm I could lower rates because I was less likely to lose money on them. For contracts that we would do well, but had more risk, I'd increase the rate.
• Set contract minimums and know your costs. It was revealed to me that it cost me at least $2,500 to pursue a late payment, so setting my minimum contract to $5,000 covered certain types of work. Use these minimums in lead qualification.
• Use clear milestones for delivery with payment to get paid incrementally. Each project deliverable was assigned a value, you get paid on each deliverable after the initial deposit. This gives you an opportunity to sign off and verify each milestones while reducing disputes on payment.

While I never eliminated having receivables, I quickly avoided additional problems in collections. Assigning my aged receivables to a third-party let me focus back on growing the business and these new steps kept money flowing towards my organization.

The selling tie in comes from improving customer qualifications to include financial measures and ability to pay. Target buyers in your market place, many times I was just happy to do my presentation with anyone, regardless of their ability to pay. Too many sales people make this mistake too.

You may be asking, "How does all this help me get paid faster?" Payment history is often built right into credit scoring, clients with good credit will pay on time to protect their score, and buyers with money have the means to pay for your solutions. It's really that simple, only do business with people who have money to spend.

© 2008 JWH Consolidated LLC, All rights reserved.

Justin Hitt helps business-to-business industrial and technology firms make profitable sales in a sustainable way. For more on getting your money, visit http://cashmanagementsecrets.com/

By Justin Hitt at February 15, 2007 3:16 PM  Subscribe in a reader