Collections can be one of the most daunting tasks for the small business owner. It's not always possible to tell if you will get paid for your work from your first client meeting. However, there are signs that can give you an idea about what to expect once billing comes due.
The owners of little creative shops come across a myriad of clientele. And they need to adapt and adjust to the culture of each industry. I have been running an advertising agency in Vancouver, B.C. for the last four years. I have had clients from segments as varied as retail, health, law, construction, sporting goods, real estate, loans, debt consolidation and pardons. One thing that I have discovered as a business owner is that a client will treat its suppliers in the same manner it is treated by its customers.
Here are some examples based on my experiences.
Lenders expect to be paid in punctual, steady installments from their clientele. They treat their invoices in the same manner. It would be hypocritical not to. You never have to worry about getting paid from a lending client.
Lawyers are used to working on a retainer system. This is a way of mitigating risk for both parties. Lawyers make great clients because they are familiar with hourly billing, with rates much higher than yours, and they are comfortable paying a large deposit in advance.
Realtors haggle for a living. They are negotiators. And they do the same to their suppliers. Every quote will be questioned. Realtors are great at getting the best value from their agencies.
Health care, in Canada anyway, is more or less free. The agency-client relationship when it comes to health care is based on trust and advice. The agency becomes a valued consultant. Just as doctors in Canada are uncomfortable talking about money with their patients (if they do at all), healthcare clients prefer straightforward billing that they pay promptly, with no questions asked.
Criminals on the other hand have almost no trust. The common payment schedule is half upfront, half upon delivery. And this is the default model for most agencies with clients they do not know. Each party is taking a risk. (Note - I do not work for criminals but I do find it interesting that it is the accepted norm for any small design or advertising agency.)
Retailers are used to getting paid months, and sometimes even years after a sale. The whole concept of "Buy now! Pay later!" is common practice amongst the competitive realm of retail. They assume that the whole world operates in the same manner. Suppliers are paid months after the invoice is received. It's just how it is.
Construction is a totally different animal. In the construction world, builders are expected to put down a bond after winning a bid. They are actually paying to work, in a way. The bond is to ensure that the project gets completed as promised, and that the developer doesn't skip town. When I worked for construction clients, they were surprised when I had the gall to ask for a deposit from them!
Friends and family can make the worst clients. It is hard to shake down a family member when the money dries up, and some friends have a hard time understanding the true value of the services provided. If you want to keep the peace -- avoid. But when times are tough and jobs are lean, sometimes it may be your only option.
Problems with accounts payable and receivable can destroy a small business. Adjusting your payment expectations to suit the industry of each client can help avoid financial pitfalls in the future.
Running a small creative company means that you will have to merge effortlessly from one social group to the next. It's what opens up the door to a variety of experiences and more importantly, new streams of revenue. Knowing what to expect upfront can save you a lot of headache down the road.