The Money You Earned and Still Have Not Been Paid

You know the number roughly. Somewhere around forty lakh, spread across a dozen customers, some of it from work finished four months ago.

You have been meaning to deal with it. But the biggest overdue account is also an important client, and the conversation feels risky, so it keeps moving to next week. Meanwhile you delayed a supplier payment and thought seriously about an overdraft.

Collection is a process problem dressed as a relationship problem

The reason receivables build up is almost never that customers refuse to pay. It is that nobody in the business is responsible for asking, on a schedule, in a way that does not depend on someone feeling brave.

When collection depends on the owner deciding it is time to make an awkward call, it happens late and inconsistently, and customers learn the rhythm faster than you would like.

Customers do not pay according to your terms. They pay according to your habits.

What late payment actually costs

It is easy to treat delayed payment as an inconvenience rather than a cost. It is a cost, and a compounding one:

• Interest on the overdraft or loan you use to bridge it.
• Discounts you forgo because you cannot pay suppliers early.
• Opportunities declined because the working capital is committed.
• Your time, and your finance team’s time, spent chasing rather than building.
• The reduction in your own bargaining position, because you need the money.

A business carrying ninety days of receivables is providing free, unsecured credit to its customers while paying interest for the privilege. Stated that way, it becomes considerably easier to act on.

Build the ladder before you need it

The value of a written escalation ladder is that nobody has to decide to be firm. The schedule decides:

1. 1.Seven days before due. A polite confirmation that the invoice is scheduled, which catches missing paperwork before it becomes a delay.
2. 2.Due date. A short reminder, sent automatically.
3. 3.Day seven overdue. A call, not an email. Ask directly when payment will be made and record the answer.
4. 4.Day fifteen. Escalation to a named senior person on both sides.
5. 5.Day thirty. A formal letter, and a decision on whether further work continues.
6. 6.Day forty-five. Stop work, or begin recovery, according to a policy that already exists.

Because the ladder is written and applies to everyone, no individual customer is being singled out. That is the entire psychological point of it.

Prevention beats collection

Most of the fight is decided before the invoice goes out:

• Agree payment terms in writing before work starts, not on the invoice.
• Invoice the day the work is complete. A week's delay in raising becomes a month in receiving.
• Check the invoice contains whatever the customer needs, including purchase order numbers and formats. A rejected invoice restarts the clock.
• Take advances or milestone payments on longer engagements.
• Know the customer's actual payment process and the name of the person who runs it.

That last point resolves a surprising share of late payments, because a large proportion are administrative rather than intentional. The invoice is sitting with the wrong person and nobody has asked.

Watch the shape, not just the total

The total outstanding tells you little. Split it into current, thirty days, sixty days and ninety-plus, and review it monthly.

The shape reveals what the total conceals: whether the problem is one large account or a general drift, whether it is worsening, and which customers have quietly moved from paying in thirty days to paying in seventy. That drift is invisible in a single number and obvious in the ageing.

Pair that with the distinction between profit and cash covered in profitable and broke, and you have most of what a growing business needs to stay solvent while it grows.

The client you are afraid to chase

Almost every business has one. Large, important, and chronically late.

Work out what they actually contribute after the financing cost of waiting a hundred days. Sometimes the relationship is worth it and the answer is to price the terms in. Sometimes the account has been subsidised by everyone else for years.

Either answer is fine. Not knowing is what costs money. This is finance and pricing strategy work, and if cash is tight while the order book looks healthy, that is exactly the conversation to have.