Are all of you invoices being paid on time? Or are customers holding on to your cash for no real reason? It’s a situation that businesses seem to be increasingly experiencing if my last four conversations with mid-sized owners and MDs are anything to go by. Right now the government is making lots of noise about late payments, but so far they’re doing very little to help. So what do you do when one of your largest customers starts holding back your cash?
Don’t negotiate: Instead, establish a principle. Your payment terms are clear; ignoring them is a breach of trust and is threatening the future of your business. Use whatever language works best for you, but keep it emotional and ethical, use the same language consistently, and anchor your counterpart to the moral principle which, for you, is non-negotiable. Introducing any form of trade to get your money simply legitimises their action and encourages them to do it again.
Escalate: There are three ways to pressure your counterpart: challenge the boss, stop supply, or go big (escalate through legal and PR). Each has increasing potential to damage your relationship, so it’s critical to scenario-plan each option to see it unfold, decide what pain you’re prepared to take, and how you could contain the damage. Always start by escalating your moral argument as high in their organisation as you can. Never make a threat you’re not prepared to follow though, so make sure you’re prepared, and then follow through.
Act first: Check you have very clear payment terms on every invoice, price list and contract, particularly on anything you intend them to sign.