These are not "nice ideas" or good thoughts. They are absolutely unbreakable for one extremely important reason: If you adopt these rules, you will not have to change them when hard times come. These rules don't change because there's a virus, a recession, or when you lose clients.
And like all good advice, it would be really great if you put the advice into effect before there was an economic downturn.
I received a timely email yesterday from Stephen. He asks, "In your book, you recommend taking credit card payments monthly, or a check for 3 months at a time. I did not see where you explain why 3 months. Is a monthly check not recommended for some reason?"
Here's how I interpret that: One of the most important rules for running your business is
Get paid in advance for everything.
Why? Well, there are lots of reasons. The most important reason is that people stop paying their bills sometimes. And sometimes can suddenly become right now when there's an economic downturn.
Guess what? Right now is right now.
January 1: The worlds was happily moving along and the stock market was headed for an all-time high in mid-February.
March 31st: The stock market had it's biggest drop in history and unemployment filings are higher than at any time, ever.
It is going to be much harder to collect money this month than it was last month. And it will be much more difficult next month and the month after that. What can you do?
Get prepaid for everything you can.
Here's what I told Stephen in response to his question:
"There are a couple of reasons for the three-month check. First – and this is going to start happening right now because of the economic downturn – People who write a check every month will begin paying later and later. First a day or two. Then a week. And eventually 30 days late.
Second, and very related, we are trying to move to getting prepaid in advance for everything. That’s easy with credit cards and difficult with checks.
In a recession, lots of people will be hoarding their cash because they don’t know what will happen to their business. You need to do that, too. These policies make that easier and limit your losses."- - -
Here is my very urgent advice to you: If you have accounts receivable, make collection of this money your absolute highest priority.
Second, as soon as possible, adopt a policy of getting paid in advance for everything you do. Period.
One of the sad truths of business is: Money owed to you is almost never collected in full.
Corollary: Old money owed to you is never collected in full.
I can't believe that people still argue with me about whether they should take credit cards. The answer is easy. Yes. You should take credit cards.
Their complaint? "But I have to pay [almost] 3% to collect that money."
Well, for those who don't take credit cards, today is the day you get to learn a very hard lesson. You will begin trying to collect money and realize that it's much easier to NOT pay a bill than it is to collect a bill. You will call people, write them letters, and beg them for money they owe you.
Sadly, some of your "good" clients and friends will simply not have the money they owe you. They will lie to you. They will say that they sent a check just to get you off the phone. They will dodge your calls and hide if you show up at their office.
Eventually, you will settle for something instead of nothing. You will take 75% of what they owe you. Or maybe 50%.
You'll do anything to collect that money.
. . . and it's going to cost you a lot more than 2.9%!
- - -
When it's all over, you're going to sit down and ask yourself, "How can I make sure that, no matter what happens to the economy, I will get paid for everything I do?" And the answer will be: Get paid in advance for everything.
That will become a policy. It will work its way into your business processes. It will not be negotiable nor flexible. It will become an absolutely unbreakable rule. And no matter what business you are in, you will not have to learn this lesson again.
Many economic lessons are only acquired by paying tuition in full. This is one of those lessons.
Go get your money.
And start requiring payment in advance from now on.