Tuesday, October 14, 2008

Make Money By Being Better Organized

Here's a handy tip in tough economic times:

Make money by being better organized than your clients with regard to money.

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Have you noticed how disorganized some businesses are with regard to the basics of money? You know: Tracking time, sending invoices, collecting money, applying payment and credit properly, paying bills on time, making deposits on time, etc.

I'm not talking high finance, timing the stock market, or balancing investors against one another. I'm talking about the true basics of running a business.

Consultants, especially very small consulting businesses, tend to be lazy about these things.

But here's a secret that will make you more money going forward: Don't be lazy about the finances and you'll keep more of your money!

These sound like very basic ("Duh!") advice. But that doesn't mean everyone follows the advice.

For example,

- Pay your bills on time to avoid fees

- Keep track of all of your time

- Get invoices out on a regular basis (daily, weekly, monthly)

- Collect everything you can up front

- Charge late fees for late payments

- Charge interest for past due balances

- Cut off service when people stop paying (Don't let them run up thousands in overdue bills.)

- When someone hands you a check, put it in the bank right away

- Put your bills-to-be-paid into a system (MS Accounting, QuickBooks, etc.)

If you follow these rules, you'll have a better picture of money overall. And you will not pay more money than you need to. And you will collect extra money from people who don't pay on time.

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Now think about your clients. You probably already know this, but they have the same bad habits as everyone else.

Don't let them make you the bank. It's not your job to loan them money, take payments without interest, or pay their bills whenever they get around to it.

This post is entitled Make money by being better organized than your clients with regard to money. Here's how that works.

We have a few hard fast rules and stick to them:

- All contract labor is prepaid

- All hardware and software orders are prepaid

- Clients with any overdue balance are charged a $25 late fee

- Clients with $500 or more past due have their service cut off. Period. I'm not kidding.

Disorganized clients tend to pay us too much money. On one hand they pay things late or forget about them. Bills go into a pile and get paid when they magically work their way to the top of the stack.

On the other hand, these disorganized clients pay off a quote and then pay again when the invoice arrives.

Bingo. You have use of their money. Here's what you do with it:

1) Apply the overpayment to all outstanding interest and late fees

2) Apply the overpayment to the overdue invoices, starting with the oldest invoice

3) Write a memo explaining what you've done and what their remaining credit is (or remaining balance due)

If there's money left over, do not offer to refund. If they want to get their money back, they can ask.

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Now you might say that's playing rough. Okay. But what happens when you pay late, don't pay, or overpay? My guess is, it looks a lot like this. Have you ever accidentally paid a cable bill twice? You don't even get a thank you note: just a memo on the next monthly bill that you only owe one penny because they received your payment.

If your clients are used to paying things late, they're also used to late fees.

These rules and policies are not unreasonable. In fact, you may be the only company your client deals with who doesn't follow these guidelines.

I'm amazed when I hear consultants talking about tens of thousands of dollars in past due receivables. Then they wonder how much they can collect as a percentage of the bad debt. Don't put yourself in that position.

Don't be afraid to implement these policies ASAP. If you send out a memo tomorrow, you can give "30 days notice" and start enforcing it by mid November.

If the economy goes down, and then sideways for a a year or so, these rules can save you a lot of money.


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