If you have previously worked as an employee, you will have worked for a period, probably the month, and then got paid. There might have been a struggle as the month progressed, and last month’s salary dwindled, but you did know that the cash was going to come.

In contrast, as a soletrader, your business might be making a profit, but if you aren’t able to get your customers to pay you, and quickly, you might not be able to continue (as you won’t be able to pay yourself and so your own bills, and also expand the business).

Here we look specifically at ways for you to improve your cash collection, if you are operating a consultancy-type business.. There are other factors to consider in cash management (using cash flow forecasts etc) but they are considered separately.

What’s the issue for consultancy businesses?

In a manufacturing (or possibly a retail) business, which involve buying as well as selling, then late payments by customers are often standard, with such businesses offering credit terms e.g. 30 days or 60 days to their customers. The owners may manage this by overdraft or other credit facilities, and by receiving credit terms from their own suppliers.

Consultancy businesses may have fewer costs to pay out (although a big one is tax, don’t forget), but if you want to pay yourself and meet your own bills (food, utilities, mortgage etc), you need your customers to pay you swiftly.

Some tips to encourage swift payment

In practice, of course, you may be a small fish in a big pond, and so might have to accept whatever treatment you get, if you need the work you get from that customer. However, there are ways to help manage your customer income (”credit control”).

• Firstly, make clear what your payment terms are when accepting work.

• Reinforce this, by invoicing as soon as you have completed the work as agreed, and state again on your invoice that this is “payable on demand”, if not agreed otherwise.

• Of course, make sure that you have done what you agreed to do - invoicing for an incomplete job is a quick way to get put to the bottom of the pile, and possibly losing payment for this, and also losing future work.

• Also make it as easy as possible for your customer to pay you; if you want to be paid electronically, include your bank details: if by cheque, give the correct payee.

• Don’t be afraid to chase up payments. Set times in your diary to look at who owes you and follow up non-payers. There is no need for aggression, and this can be done politely, and in some cases, businesses won’t pay you until you chase.

• At the outset, find out when a customer performs regular payment runs. If this is the 1st and 15th of the month, or every Friday for example, make sure you have completed your work before these dates, and that your invoice is not only issued, but that it will have reached the appropriate person before then.

• If you regularly perform work for certain customers, and bill for several pieces of work separately, then send periodic statements to show what is still outstanding.

Contingencies

There is always going to be timelag between winning work, and eventually being paid for it. The key is having some form of contingency - savings, overdraft etc to live on during this - ask your accountant or bank manager for the most effective way of handling this.

You just want to get on with winning work, and performing it, but without making sure customers are billed, and payment collected, the business may not survive regardless of how many profitable contracts you complete.As with all our information in The Business Lounge, this is not comprehensive tax advice, and may not apply to your specific circumstances; to discuss how these issues affect you, contact your accountant.