Hello SOTGC community,
This post is about a lesson I had to learn the hard way as I started my first business. I’m not trying to deter you from venturing into becoming an entrepreneur, but it’s something to be aware of so you don’t make the same, costly mistake I did.
The Honeymoon Phase
Like most new business owners, I entered into my marketing consulting practice with trust and naiveté.
There are a lot of administrative things to figure out: how much to charge a client, legal contracts, templates, billing etc. And then there is also the part where you define your mission and, in my case, place much faith in the human race, because you believe in integrity and honesty.
I was very lucky with my first few clients who I all knew personally before I started working with them. They all paid on time
Then a client came as a referral from an old colleague. The rule of thumb is that referrals from people you know are good referrals. But my gut feeling was to turn the project down, as I had little rapport with the client, but I told myself that I had to build my business and could not afford to say no.
What they did not tell you at St. Mary’s Business School….
I don’t want to disclose any details of my work with this client but that I got positive feedback along the way and we both considered the project outcome a success. The final words were “the check is in the mail”.
After the check did not arrive, an agonizing period started where the client admitted to being unable to pay, asking me to put him on a payment plan. It was very upsetting.
My wake up call came after talking to my accountant and self-employed friends: it turned out that almost everybody I knew had lost money to non-paying clients (this was a very long trail on Facebook). Trying to collect the money can take so much time, effort, and money – and there are no guarantees for success- that many people just write the owed money off. Ouch!
After receiving this feedback, I accepted the client’s payment plan and received the first payment; already a few days late. That was the last payment I received.
The lesson I have learned is to always ask for enough money up front to cover myself until “pay day”.
What I mean by that is, cover yourself (at a minimum) up to the time your first payment is due. Example: you bill every 30 days and your client has 30 days to pay you. Ask for enough money in advance to cover you for 60 days of work. If the check does not arrive on day 60, you can stop the project but haven’t made a loss. Of course, they could not pay you in the future but at this point, you have at least established some trust.
Having said that, it seems common to ask for anything from a minimum of 20% to 40% (sometimes even more) up front, especially if you charge on a project basis.
If the client refuses: walk way! It’s common practice.
Too be continued…
Photo credit: www.stepawayfromthechocolate.com