How many old receivables will it take before you do something?

The training company CEO was at her wit’s end. Time after time, her team would deliver programs that made a real difference to clients, and then they’d wait weeks or months to get paid.

The urgency the clients had before the training seemed to disappear after they delivered.

She had a well written contract that specified her terms and conditions including payment within 14 days following the completion of the training. Invoices went out promptly.

But her AR aging report showed that weeks would go by while clients didn’t pay.

She had business but she had no money.

Her long list of past due receivables finally prompted her to ask me for my help.

The good news

This firm had a great reputation in their chosen industry, repeat clients, many referrals. They were steadily busy.

Their revenue was growing each year and was producing a reasonable profit.

To me, these are all indicators of a solid company.

And yet, cash flow was always tenuous. They struggled to pay their bills.

Why?

When a company has many strong indicators, and yet is struggling to pay its bills, I look at two key things.

  • Pricing strategy.
  • Terms and conditions.

This firm’s pricing strategy had room for improvement.

Pricing strategy means how a firm determines their fees and prices. You have to have the HOW nailed down before you set the actual price.

This firm charged by time and number of participants.

They basically had a price per head per hour of training.

They adjusted the invoiced fee based on the number of people who actually showed up for the training. If someone was out sick or on leave, the number of participants was reduced, and the invoice was reduced.

This happened because this company’s pricing strategy was all about charging for inputs. Time and training to X individuals.

Our first order of business was to reframe their work from inputs to IMPACTs.

What life changing differences did they deliver?

And how broadly were those differences felt? The department? The division? The whole company?

The conversations about IMPACT hit the CEO hard!

She’d had “making a difference” as her driving force years ago when she started the company. But she lost that in the years since, because everyone talked about inputs.

Once we had a list of IMPACTs her training programs delivered to clients we moved on to the next issue: payment terms.

Payment terms

The only payment terms that make sense for professional and business services firms are payments in advance.

Everyone knows in advance the date, the location and the IMPACTs to be delivered. The fee is proportional to the IMPACTs.

The provider should make their offers including the stipulation that payment in advance is required to hold the date and for the trainer to prepare the training.

Nothing messy, squishy, or ambivalent about this.

The provider must enforce the terms. If the payment is not received as required, the client needs to know the training is at risk. If the payment is still not received, the provider needs to cancel.

My client was nervous! This was so different from anything she’d ever done—and from what she knew others in her industry were doing.

But she couldn’t take the cash flow problems any longer. So she bit her lip hard and agreed!

When the very next request for training came, she and her team reviewed their IMPACTs, the fees for those IMPACTs (not the inputs!) and offered the client three choices (The Choice Framework) including the stipulation of payment in advance.

The client chose the IMPACT option and made the payment in advance.

Since then, they’ve continued this pricing strategy.

It took a few months for their cash flow report to show they always have cash in the bank now and for their aging AR report to show no outstanding receivables.

The CEO called me recently to report on this good news.

She said, “I hate to think how much longer we would struggled with cash flow if we hadn‘t worked with you.”

How many more weeks or months will you struggle with cash flow before you do something?

When ever you’re ready to make a change, I can help.

Text CASH to 703-801-0345 if you’re ready now.

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