I’ve commented previously on billing related issues, for example, here and here.

Now though I want to focus on cash collection.   It’s great to win a new piece of work. We also get a warm glow when we issue a decent size fee invoice but what really counts is getting the cash in.

Are you one of those professionals who think it is beneath them to chase for cash? Personally I think that’s a contradiction in terms. How can you be a professional if you don’t focus on the cash? How can you profess to advice other businesses if you don’t ensure you get paid for your advice?

In my talk on ‘How to make more money from your tax work’ I explain that reducing ‘lock-up’ is an EASY way to make more money. It reduces the capital you need to have in the business and it’s non-taxable.  What I mean by this is that your tax bill is the same regardless of how quickly or slowly you collect your debtors.

‘Lock-up’, by the way, is the aggregate of your debtors and work in progress. It’s the total amount you have ‘locked-up’ in your clients at any one time.  By way of contrast if you billed all work in advance you would have no ‘lock-up’ at all.  If you typically bill your clients once a month and secure payment 30 days later then your average lock-up would be 60 days. Many established professional firms seem to struggle to get their ‘lock-up’ down to less than 100 days. For many it’s even longer than that.

Techniques for keeping ‘lock-up’ down can be used at every stage of the billing process – thus:

• When quoting for work – Consider seeking payments in advance, especially from new clients you don’t know from Adam;
• When the timescale for the work is extended but you’ve started the work – assuming it’s not your fault that completion has been deferred;
• When you discuss the proposed fee with your client – thus avoiding unpleasant surprises and reducing the prospect of subsequent challenges and delays;
• By enforcing your standard payment terms – perhaps allowing an independent creidt controller to chase up for late payments;
• By stopping ongoing work if the previous fee has yet to be paid – to continue working in such cases just increases your lock-up and the liklihood of write-offs down the line.

Here’s one simple idea that many ambitious professionals can use when presenting an invoice to a client at a meeting.  As you do so ask, in the same breath, When can I expect to receive your cheque or bank transfer? Some clients will respond by asking if 30 days is ok? Others will have their cheque books with them and write one out straight away. Others will say ‘within the week’. To everyone who doesn’t pay you there and then you ask “Can I hold you to that?”

I’d welcome comments of other tips that can help reduce lock-up and will return to the subject in a future blog posting.

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