My small firm has never had cash flow problems and we've never had a client successfully avoid payment. (EDIT: We've had cash flow problems in the beginning due to being a startup, but never from non-payment).
There are a few things that we do that have created this scenario:
1) Stipulate a 10 day payment policy. We don't really expect people to pay that quickly, but prospects/clients always bring it up. It give us the opportunity to communicate how serious we are about getting paid. We then flex the policy to something more realistic, although we make them fight to get the time beyond 10 days.
2) Payment is made regardless of the client's invoice status. We work with a lot of creative agencies so we're not always contracted to the ultimate payer. We make it very clear that we will be paid on time regardless of the status of their invoices. This is a really big thing to look out for it you work with agencies; they want to try to wait to pay you until they've been paid. We make it crystal clear that we will not allow their collection issues to become our collection issues.
3) Meet with your clients face-to-face and build relationships and in some cases friendships with them. It's a lot harder to screw over someone you have to look in the eye. Also, in my case I'm a pretty big dude, ex-lock (rugby), and it's also harder to screw over someone who could break you in half. It's primitive, but it works. :)
4) ALWAYS ALWAYS ALWAYS get money up front. We have a sliding scale for this based on total contract size, but it ranges from 25-50% as an initial payment.
5) Don't start the clock or work until you get paid. We guarantee delivery time, however our clock doesn't start until we've deposited payment, and our contracts stipulate this.
6) Follow up on invoices. We follow up on invoices at 15 day intervals. This is a good thing for so many reasons. It reminds them you're serious. It allows you to communicate before you have to go to the mattresses. It keeps you on top of your A/R because it's too easy to go "oh, it'll be okay, they'll pay" and go back to the IDE.
Yes. I've been following each of these for a few years (except for the big & threatening thing, I'm pretty short) and no client has ever completely escaped payment on me.
Everything stated here is the gospel. If you run a consulting business, follow this to the letter. You will always get paid, eventually.
My policy is that when it comes to getting paid, I am aggressive as hell. I treat every invoice as if the client will be delinquent. You can be the nicest person to work with, but be the most vicious asshole on the planet when it comes to billing. Establish that up front, and they will always pay.
Thanks. Our language on the matter is very specific, and we are very explicit about that policy both in the contract paperwork and in our verbal communications.
Even so, I'd say 3 of 5 clients try to pull the "we haven't been paid yet, we can't pay you" bit. At which point I remind them of their initials on the contract acknowledging that they understood that particular point.
Bottom line, I refuse to let their cash flow issues become my cash flow issues.
There are a few things that we do that have created this scenario:
1) Stipulate a 10 day payment policy. We don't really expect people to pay that quickly, but prospects/clients always bring it up. It give us the opportunity to communicate how serious we are about getting paid. We then flex the policy to something more realistic, although we make them fight to get the time beyond 10 days.
2) Payment is made regardless of the client's invoice status. We work with a lot of creative agencies so we're not always contracted to the ultimate payer. We make it very clear that we will be paid on time regardless of the status of their invoices. This is a really big thing to look out for it you work with agencies; they want to try to wait to pay you until they've been paid. We make it crystal clear that we will not allow their collection issues to become our collection issues.
3) Meet with your clients face-to-face and build relationships and in some cases friendships with them. It's a lot harder to screw over someone you have to look in the eye. Also, in my case I'm a pretty big dude, ex-lock (rugby), and it's also harder to screw over someone who could break you in half. It's primitive, but it works. :)
4) ALWAYS ALWAYS ALWAYS get money up front. We have a sliding scale for this based on total contract size, but it ranges from 25-50% as an initial payment.
5) Don't start the clock or work until you get paid. We guarantee delivery time, however our clock doesn't start until we've deposited payment, and our contracts stipulate this.
6) Follow up on invoices. We follow up on invoices at 15 day intervals. This is a good thing for so many reasons. It reminds them you're serious. It allows you to communicate before you have to go to the mattresses. It keeps you on top of your A/R because it's too easy to go "oh, it'll be okay, they'll pay" and go back to the IDE.