We paid our vendors as their bills came in. We didn’t look at the due date and didn’t even think about considering whether we had the cash flow to pay them. Our recurring revenue was annualizing at over seven figures so we were much more worried about getting the client work we promised done, not what was in our bank account.
We were the fastest payer and the slowest collector in our own supply chain, and we were proud of exactly the wrong half of that.
But, on the inside, things were going terribly wrong. Yes, we had a seven-figure business. We had signed clients, really meaty work, and revenue booked out for months.
So why did we have less than two payrolls and one rent cycle in our checking account? Our runway was less than one month.
Those two facts were both true. The revenue was real, and ultimately our clients would cut us a check. We had a solid pipeline, really happy clients, a growing team, and still not enough cash to keep it going.
This is not a niche problem. QuickBooks found that 59 percent of small businesses are carrying overdue invoices, and nearly half report invoices more than thirty days past due. Allianz Trade says one in four business failures are due to late or unpaid invoices. The businesses in that statistic did not fail because the work was bad. They failed because the money came in slower than it went out.
Be collectors first, business owners second.
Here is what that means in practice, broken into the three places the money gets stuck.
1. Write the contract so you can collect
Most founders treat the payment section of a contract as boilerplate they pulled down from ChatGPT. And when the client puts their version of the “standard payment language”, we founders passively accept it to get the work started. What we forget is that this section is the most negotiable part of the document, and it can have the biggest short-term impact on your business financials.
Five things belong in there.
- Payment terms as a real negotiated term. We locked in net-thirty with clients and pushed our vendors to accept net-forty-five. That gave us a rolling fifteen-day buffer between money coming in and money going out. That buffer is literally everything for a small business owner who might take a few days to figure out what checks came in and what ones she has still to write.
- The name of the approver and the PO number. Track down before the first bill is sent who the person, department, or many-digit number that needs to be on the bill to get it routed correctly. This makes sure the bill is routed to the right place, which wildly increases its chances of getting paid on time.
- A billing calendar. It took us far too long to figure that if you bill only when the project is complete, you are financing your client. (This stung especially hard for us because our clients were Fortune 1000 companies and def had more money than we did.) Bill monthly or against milestones, and put the dates in the contract so they have teeth.
- A late fee with a number attached. A clause that says payment is due in thirty days with no consequence attached is likely to get ignored. Attach a monthly interest charge or a flat fee and your client is more likely to pay attention to it.
- A notice period on the way out. Our retainers carried sixty-day out clauses. Often clients would pay the full out clause within that period as this is a standard process for them. The key is that no single client can take your revenue to zero in a week.
2. Handle disputes before they become disputes
Most unpaid invoices are not disputes. They are administrative failures. The invoice amount did not match the purchase order. The approver went on vacation and it never got rerouted back to her when she returned. Nobody is refusing to pay you, in fact, they aren’t thinking about you at all.
Call before you escalate. We hounded people weekly, nicely and usually after asking them if their dog Cassie was doing better after her surgery. People are inherently nice and want to help you, so a few kind words might get them looking to find an invoice hidden in a queue with someone in payables still digging out of vacation.
When there is a real disagreement, run it this way.
- Split the invoice. Get the undisputed portion paid this week and argue about the rest separately. Never let one contested line item hold the whole payment hostage.
- Confirm every conversation in writing the same day with a short email. Here is what we agreed, here is what happens next, and here is when I will follow up with you.
- Escalate, militarily, on a clock. Day thirty-one, a note to accounts payable. Day forty-five, a call to the person who hired you, not to her finance department. Day sixty, the stop-work clause you wrote in section one.
- Know your walk-away before you need it. A client who will not pay is not a client. There are collections lawyers everywhere who will take a third of what they collect. Sadly, and just in case, find one to keep on speed dial.
One more thing, because we have watched a lot of women do this. Asking to be paid for work you delivered is not rude, aggressive, or bad for the relationship. It is the transaction and the deal you made. You kept your part, now make sure your client keeps their part.
3. What we wish we had done, and later found out everyone else already was
For years we treated our payment terms as a fixed feature of the industry. Consulting bills in arrears. You do the work, you invoice at month end, you wait thirty days, you chase. We thought that was just how it worked.
Then we started asking around to understand how our competitors and frenemies got paid. Turns out everyone was taking a page from the lawyer book – one that we had unwittingly ignored.
Our attorneys never invoiced us in arrears. They took a retainer up front, drew against it, and told us to top it up when the balance ran low. Competitors we lost pitches to were asking for a deposit before kickoff and billing monthly fees on the first rather than the thirtieth. They weren’t losing work because of it, and nor would we.
We had been the cheapest credit our clients had. Interest free, thirty to sixty days, renewed automatically every month, for years.
Nobody hands you better terms. You set them, or you finance the people who did.
Here is what we would put in place if we were starting over, ordered from easiest to hardest to sell.
- Monthly in advance instead of in arrears. Same client, same fee, same scope. You bill on the first for the month ahead rather than on the last for the month behind. This is the smallest change with the biggest cash effect, and it is a one-time conversation at renewal.
- A replenishing balance. The client funds an amount, you draw against it, and the agreement requires a top-up when it hits a floor. This is the model your own lawyer uses on you. It works in any project-based business.
- A discount for prepayment. Quarterly or annual in advance in exchange for a modest reduction. You are selling certainty and buying it at the same time.
Start with new business, where there is no precedent to unwind. Then move renewals one at a time at the natural break. The worst case is that a client says no and you keep the terms you already had. The likely case is that most of them say yes, because the woman on the other side of the table is doing the same thing to her own clients.
Do this in the next hour
- Pull your accounts receivable aging. Write down every invoice past thirty days and the name of the human who can move it.
- Read the payment section of your standard contract and if f it does not name terms, an approver, a billing calendar, a late fee, and a notice period, it is costing you money right now.
- Pick one renewal landing in the next ninety days and move it to paid in advance.
Nobody is going to congratulate you for this. No one except for your mother (well, actually, Beth’s mother because she is an accountant) will think you are cooler for having done this. But this really unglamorous strategy, we guarantee, is going to make you richer.
The financial rules of engagement behind all of this, including the hiring rule that kept us out of the red for a decade, are in Chapter 6 of Entrepreneur Like a MOTHER, Power Move #3: Make the Money Moves That Matter. The book publishes September 22.
P.S. If someone you know is in a hard week right now, forward this to her. No pep talk attached. Just this.
