As Microbusinesses, we often find ourselves as piggy in the middle. If your business is based around large ticket items or projects then you will, in all likelihood, have to pay your suppliers promptly but find yourself stuck as you wait for your client to pay. Big corporations are notorious for this and it’s been a particular problem for one of my companies: NlightN Multimedia. We develop media and elearning products for corporates and we have to pay other small companies who provide us with services: for example voiceover artists and video companies. At the end of the project, there comes a moment when you must hand over the working product and await final payment. This can take, literally, months and months to come through while you must keep your business afloat.
Research from NatWest and RBS shows that 71% of SME’s in the UK have suffered from late payments in the past year but less than half have done anything about it.
What can be done?
- Change your business model so that you have many clients paying smaller amounts rather than a small number of large clients. This is difficult for micro businesses because it’s all too easy to become reliant on one or more big clients but the result is that these clients have complete control over your cash flow and this is bad.
- If you can’t change your model, get staged payments. At NlightN, we insist on 50% upfront on all projects, 25% on delivery of the alpha version and only the final 25% at the end. Ideally, you should make sure that you can make a profit on the 75% you can be fairly sure of getting with the final 25% being, effectively, a bonus.
- Consider offering a discount for early payment or using a credit factoring service. The latter is where a company buys the invoice from you (at a discount). You get instant money and they then chase payment and keep it.
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