Tuesday, May 4, 2010

why are we scared about asking to be paid?

Ask most employees what they grumble about most, and ask their employers about most, and it’s likely to be getting their pay cheque on time.

Yet when we create new enterprises, we suddenly seem to lose this boldness and capitulate to our customers when they’re late in paying our bills and invoices to them – to the tune of over £62 billion for small businesses!!!

So why this change in attitude between being an employee and an employer over money?
I have a suspicion it’s about FEAR. We’re frightened that if we appear pushy, our customers won’t come back, and/or even more damningly, our customers start to think “if they’re so desperate for our money, then they must be in trouble, so better take my business elsewhere”.

So what do we do?

Well, for starters, let’s be more open about talking about money and getting paid – raise it as soon as we can as part of negotiations with customers and clients, be clear about when they want to pay and when you want to be paid from the outset. Negotiate, haggle, agree compromises – after all, we do that already over the price and delivery schedule, so why not the payment terms?

Plan the cash-flow: so many businesses fail because they run out of cash before they get paid – I’ve seen it happen, including to a business that was making a £1m+ profit annually (I helped their employees subsequently buy-out the business).

Finally – don’t forget the easy stuff: there’s a lot of legislation you can use to support you with your asking to be paid. The biggest (and least well known) being the Late Payment Act which says that as a small business, you can charge interest on what you’re owed if its late in being paid. And after all, it’s not you that’s chosen to charge interest: it’s the government and their legislation... so no risk to your personal relationships. I’ve used it a number of times and on each occasion got paid more promptly AND had that client/customer book me for further work.

Simple things that with a bit of thinking and planning can make all the different to getting that overdraft reduced and staying in business.

Or maybe there’s something about ‘being British’ that means we like being owed more than £62 billion and not being able to cash it?


  1. Being really explicit about payment terms is necessary: put it in the contract, summarise it on the invoice, put it on your calendar.

    I think co-operatives have less to fear from the "so desperate, must be in trouble" idea - most have had to build on more patient capital because we couldn't give the same sort of equity, so people know we're not often at risk.

    Top cash flow tip from the adapt2survive course I went on yesterday: we should have full terms of purchase as well as terms of sale. Amazingly, I think that was the first time someone emphasised that to us and we've been running for over 7 years.

  2. Hello there

    social entrepreneur who always gets paid on time here!

    I find it is very important to send out clear and simple terms and conditions when you agree the remit of the work. Asking clients to reply by email to confirm they have received the t and c s and accept them. There is a clause in mine relating to the right of small businesses to charge 8% over the base rate, per day for every day of late payment. I have never had to do this... that's why it's there! If you set your boundaries out clearly at the beginning, it avoids those horrid conversations at the end! Hope this is useful to someone, somewhere!
    Erica, Director of The Life Project - training social and creative individuals and businesses to excel.