Freelance and consulting: prompt payment is top priority
The Wall Street Journal on June 7 ran a story that I find alarming: Larger companies are slower than in the past to pay small creditors.
Larger companies are using their strength in the marketplace to take advantage of service and product suppliers, with invoices remaining unpaid for 90 days or even longer.
The story has figures to back up the claim, which is of great concern to freelancers and consultants. Here are some facts:
Experian-Moody’s reports that in the first quarter of 2012, businesses paid their bills an average of 7.6 days past due, up 14.1% over the same period previous year.
A National Federation of Independent Business survey of small businesses, almost all with less than $5 million in annual gross sales, found that up to 64% of those surveyed in 2011 experienced invoices going unpaid for at least 60 days. Twenty percent reported growing numbers of delinquencies.
The Ewing Marion Kauffman Foundation discovered that 14% of small businesses surveyed named late payments as their top business challenge of 2010, up from 2% only two years earlier.
The article goes on to describe smaller suppliers who are dependent on one or a few larger companies for most of their business, with these smaller companies using their credit line to stay in business and pay employees while waiting for payment.
One of the business owners disclosed that he is now primarily going after midsize companies as his customers since in his experience, they are more likely to pay on time.
Trying to collect is infuriating and frustrating. Freelancers and consultants must be vigilant in preventing this problem, even if it means turning down business. It’s better to have free time available to go after better clients than to fill up our time on slow-paying ones.
The secret is to require payment—at least partial payment—up front before starting work.
Originally posted 6-10-12