Business Booby Traps #3
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Business Booby Traps #3
Say so long to slow payers!
It’s natural for new entrepreneurs to gratefully take any business they can get, especially at the very beginning. On the surface, this sounds like a good idea. The problem occurs when you’re dealing with someone who is a deliberate and notorious slow payer.
The naive and uninitiated new business owner innocently believes all prospects are aboveboard; however, that is not always the case. Along with all the good people who want what you sell, you are likely to encounter those people who have made it a fine art of preying on the inexperienced entrepreneur by giving every impression that they will be good customers. The reality is slow payers can put you out of business.
In the staffing industry, one of the fastest ways for a new company to go out of business is to take on a big assignment from a new client. Let’s say you have 10 people working for you at 40 hours each per week. After two weeks, you are responsible for paying for 800 worked hours. At $15 an hour, you are now out $12,000. Your customer usually pays within 30 days — assuming your customer honors that agreement. By the time the 30-day period comes and goes and your workforce is still in place, you’ve now paid out $24,000. If you haven’t gotten paid, you’re either going to have to max out your credit cards, use a line of credit (assuming you could get one), or pay out of your own pocket to float this expense.
If you learn eventually that this prospect is a slow payer, even if you took legal action, it will take you months to collect all the money you have now been paying out and paying interest on.
I cannot state this strongly enough: Put all of your agreements in writing. Get a signed copy before you take any work and, if at all possible, get a credit card that you can keep on file with the understanding that if a payment is late, you will be running the card. This still doesn’t guarantee that you won’t get taken for a ride, but it will cut down the odds.
There are plenty of honorable companies with which to do business. Ask for references and credit checks before you put yourself into the red.
A business can survive longer with no business then with unprofitable business.- Larry Steinmetz
This excerpt is taken from my The Psychology of Selling III: Overcoming Price Objections seminar.