Tuesday, 28 February 2006

Invoices and Cash Flow

I have been back from the US for two weeks now. I am flying back out in another two weeks. In theory I was supposed to work with the UK/Maltese company I had been talking to but they changed their mind so I found myself at a loose end. I am not chasing them because we agreed that their reason for not doing work with me now was sensible so it’s not worth me wasting my time on this. They know where I am anyway so if they need me they can contact me.

Instead, I spent the first week back home concentrating on getting the invoicing process sorted. The first invoice I sent to my American customer last month was very straightforward as it was a fixed price item. The one this month is much more complicated as it is based on time and material. So it involves getting timesheets and expenses right. This is extremely important for the business to work properly: if I can’t invoice customers, I won’t get paid; if I don’t get paid, it doesn’t work. I’ve got that sorted now so it was time well spent.

Last week and this week, I’ve been doing some work with a London based company I know from my previous job. This particular assignment is paid less than I would normaly want but it is interesting, it can lead onto a lot more and I am confident those guys will be fast in settling invoices. I am discovering that how fast your customers pay you is extremely important at the very beginning of a business, more than how much they pay you. When you start, you need to kickstart your cash flow by getting some money in the bank. If you end up waiting 3 months for a big paycheck, it can be the death of the business, before it’s even started.

To summarise, the lessons of the past two weeks are:

  • Don’t chase customers you’re very unlikely to do business with, even if the possibilities are potentially fantastic, concentrate on customers who want to do business now;
  • Assess how quickly your potential customers are likely to pay your invoices and concentrate on those that pay quickly, even if they offer less money.

Of course, once you have your cash flow sorted, money coming in regularly and a few months worth of earnings stashed away in the bank, you can disregard those rules to net a big contract. I am not there yet but I think I’m on the right track.

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