Money Strategy #4: Pay Your BillsNovember 21, 2008
This article is part of a series of eleven short articles on managing money. It is aimed at freelancers and independent contractors. Before you read this article, make sure you have read the disclaimers etc. in the introductory article about my money management rules.
Strategy #4: Pay your bills on time
Your creditors will love you for it, and if for some unfortunate reason you have to delay paying a bill, they’ll be more inclined to give you the extra time than if you regularly pay late.
Whether it seems fair or not, some creditors are more important than others—the tax office, for example. Make sure you pay those tax bills as soon as possible as there are severe penalties for defaulting on your tax obligations.
If you expect your customers to pay you on time, then offer the same respect to your suppliers.
Another story, this time about Suzanne. I asked Suzanne to do a phone consultation with me. After the call, she emailed me her invoice and I paid it electronically within 30 minutes of receiving it. She called me and told me I was her fastest-ever payer! And that she’d work with me again in a heartbeat. Sound familiar? See Strategy #3 for the story about Harry—I think Harry’s terrific, now Suzanne thinks I’m terrific. And all because both Harry and I paid promptly for services we received. I call it goodwill.
If you can’t pay on time, let your supplier know as soon as possible. Do not let time go by without taking some action in the hope that the situation will get better. That action could be as simple as a phone call explaining the situation and offering a payment plan. And if the situation does get better, then pay your oldest creditors first or pay an amount off each creditor’s bill.
Rod worked as a subcontractor for me at ABC (not their real name), a large government department. I had agreed to pay Rod within seven days of his invoice to me, knowing that I had to wait some 6 weeks for ABC to start paying me, then 30 days for each subsequent payment. I had sufficient funds to cover a 6-week shortfall, otherwise I wouldn’t have taken on the contract, or at least not under those terms. Problem: ABC was late paying me by some 10 weeks, despite calls, emails etc.
I’d been paying Rod according to our agreement, but after some 8 weeks I could see that cash was getting very tight without those expected payments from ABC. I contacted Rod and told him the situation, asking if he’d be OK with me paying only a percentage of his next invoices until I got paid by ABC. I was honest and up front with him. In turn, he was more than accommodating—and was horrified that I hadn’t been paid for any of his work to date. As it happened, I got paid within a few days so I could pay Rod in full. And yes, I had contacted Accounts Payable at ABC numerous times, but they’d used the excuse that “it was in SAP and would be paid in the normal cycle”.
- The Rules
- Strategy #1: Get professional advice
- Strategy #2: Keep your money separate
- Strategy #3: Invoice regularly
- Strategy #4: Pay your bills on time (this article)
- Strategy #5: Pay yourself
- Strategy #6: Set aside your tax obligations
- Strategy #7: Use accounting software of some sort
- Strategy #8: Regularly keep track of your position
- Strategy #9: Decide on a billing method
- Strategy #10: Manage any surplus funds