Money Strategy #8: Track Your PositionNovember 25, 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 #8: Regularly keep track of your position
At any moment you should know what’s been invoiced and is therefore due to you (‘aging receivables’*). If a customer is late with their payment, you can get on top of it early and not let the time frame blow out to the point where it starts to affect your business. Take those aging receivables seriously. Chase up the client if the ‘acceptable’ time frame for payment is getting out of your comfort zone. You don’t want to have $2000 bill to pay, $10000 owing to you, and nothing in the bank. Remember Rule #2: Positive cash flow is king.
Set aside a regular time to administer your business. This could include entering income received and business expenses incurred into your accounting software package, entering time billing amounts, reconciling bank statements, generating invoices, running reports, generating statements for overdue accounts, and the like.
Depending on your business and how many concurrent clients you have, you may need to manage your finances once a day or once a week. If you only have one or two regular clients, you could get away with doing your accounts once a month. Personally, I spend between one and four hours per week on this task, depending on the time of year. Time spent keeping your accounting data up to date is time well spent. It also makes the end-of-year tasks much simpler to manage.
Consider investing in a bookkeeper who checks your accounts every so often. I use one who I employ for an hour every quarter just to make sure I’m on the right track with my accounting software—she answers all the questions I’ve accumulated for her.
* Aging Receivables: A schedule of accounts receivable according to the length of time they have been outstanding. The schedule will show which accounts are not being paid in a timely manner and may reveal the source of developing cash flow problems. Your accounting software (see Strategy #7) should have a report you can run for this.
What to do with late or non-payers?
Fortunately, I’ve had very few non- or late-paying clients (only three in nearly ten years of business). Two were very persistent in not paying (I knew the other’s circumstances well and knew they’d pay when they could—they did, without me bothering them except for a reminder every two months). I eventually got paid by the two bad payers:
- Bad payer #1: After numerous invoices/statements/letter threats of legal action, I went to his home-based business with my very tall husband (who looks like a cop but isn’t) in tow. The guy wasn’t there, but his wife was so I got the money from her.
- Bad payer #2: I continually sent reminders, phoned them, and threatened legal action. They EVENTUALLY paid after lots of excuses.
I won’t work for either again. For the small amounts of money involved in both cases, it just wasn’t worth it.
All other clients have been good to very good about paying on time or within an acceptable time. On only one or two occasions have I had to remind the person who countersigns my invoices, or the Accounts Payable person, that there’s still an invoice outstanding—invariably it’s paid straight away.
For clients I’ve never dealt with before, and for whom I have no prior or referred relationship, or who are overseas, I ask for 50% payment of the expected time up front in my PayPal account, with the other 50% on completion. So far, so good.
As I mentioned in Strategy #3, my favorite clients are those who pay within a day of receiving the invoice—they sure know how to get me to work for them again!
- The Rules
- Strategy #1: Get professional advice
- Strategy #2: Keep your money separate
- Strategy #3: Invoice regularly
- Strategy #4: Pay your bills on time
- 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 (this article)
- Strategy #9: Decide on a billing method
- Strategy #10: Manage any surplus funds