by anil on November 6, 2007
If there is an MBA on collecting money, I would like to hire one with that qualification. Acquiring a client and then making a sales with them is just one side of the story; getting their money in your bank account is the other.
It doesn’t make any difference whether you are a giant MNC or a garage start-up and it doesn’t make any difference either even if your client is overwhelmed with your service/product. They will have an accounts department which functions in isolation and its sole duty seems to deliver enough verbiage and delay your payment.
Ever since I started doing business I have been seeing this pattern. I had discussed this with other business people and accountant/finance people whom I met on non-business occasions. They all secretly agree that delaying payment is considered to be “a revenue” and is a standard practice. So better be prepared for that.
It doesn’t matter where in the value chain your position is. Or whether you are in B2B or in B2C business (I know one private utility company with INR 3cr. (30 million) outstanding to be collected from its end-customers). Outstanding debt in B2C business is a global story though.
Further to my research I found out that everyone in the business chain is practicing it! So that means none is benefited out of it, isn’t so? I think so. So why can’t we decide to be principled to release the money we owe to other businesses and clean up the entire chain?
A Few Notes for Start-Ups
You gotta learn to live with this unfair practice or you die. See the following notes; they will save your business.
Take control of your cash flow: That is the life blood of your business however big or small your business is. Having everything right, the only thing which can upset your cash flow is the unexpected delay in collecting your money from your clients. So leave room for that. Check out with your peers in the business about the payment norms in your sector (it is there in very sector; only difference is “how long”). Make sure that you do not expect an inflow too ahead of it actually reaches you.
Plan only after money reaches your account: This is an extreme defense you can adopt. Do not spend before you get the money in hand. But this can slow down things a little bit. So practice a safe balance.
Plan as if delayed payment is the norm: For all your long term plans which are based on your business inflow, plan as if delayed payment is the industry norm. I have seen a business with a healthy turnover of INR 2cr (20 million) and with a strength as low as 10 crumbles just because of delayed payments.
Do not spoil relationships: Collecting money is a tough thing. They will make you feel like you are in their house to ask a favor! Be prepared as they will have stories to counter your arguments. Such situations are emotionally demanding. You whim and yell and shout; but make sure that it won’t cost your relationship. The world is so small; a spoiled relationship can cost your business–not just with them but in the entire sector depending on the influence of the people you are dealing with.
You made a sale? Do not relax. The real job starts after you deliver. Do not forget this.