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Apr 18, 2011

No time for customers!


Translation: "I have no time for occasional customers who require a translation in two days but need thirty days to pay."

When I read that little shocker in the twitstream of a colleague I respect a lot, I figured he was having a bad day as I often do, and then I chuckled to myself that Italian translators would surely like to trade places with him given their net-never world. It's a pretty fair bet that if a customer (agency or direct) in the "DACH" countries (the German speaking ones, where translation pays well enough that you can usually afford a roof over your head) takes more than the 30 days' standard from EU guidelines to pay, that company has major cash flow problems and should be handled with care (low credit lines or cash in advance), or they are simply shady. Or disorganized.

But 30 days? C'mon! In a B2B world, which is the one freelance translators mostly live in, some agreed time on that order of magnitude is usual practice. It is important to remember that private persons (B2C) should indeed usually be cash in advance or on delivery, and some project management systems such as OTM actually let you set default terms according to the type of business and your likelihood of carving out a pound of flesh with lawyers if the company turns out to be a deadbeat (i.e. "risk management").

In a well-run freelance business with prompt invoicing, cash flow should be relatively smooth on average, and there are well-known strategies for dealing with the potential "bumps in the road" from big projects (advances, milestone payments, just saying "no", etc.). And there are other options.

Recently, I went through a period where my cash flow was hit with a bucket of ice water from a combination of vehicle and moving expenses as well as a deliberate slowdown in billable projects to give me time to adjust to changes in my personal life and relationship status. With the additional recent addition to overhead of a kid starting university studies, it was clear that some action was called for. So I raised prices in a number of significant cases and introduced modest net 10 day payment discounts, which most clients were pleased to take advantage of. Problem solved quite nicely with very little effort on my part. My project management environment in OTM also enables me to do these little incentives as one-offs or a default for certain customers. This is a common practice in business, where prompt payment discounts typically run between 2% and 5%.  I noticed a 10% discount being offered in a spam mass application that one of my agency friends forwarded to me tonight. Don't go there. An excessive early payment discount is stupid, as it only makes you look unprofessional and desperate. Stick to the usual percentages that a healthy business would offer.

There are probably other good strategies to encourage payment in less than 30 days, and if you've got one, please share. I have another informal policy that I implement quietly as a reward, though I can't say if the clients affected are even aware of it. I have a few clients who for years have made it a practice of paying invoices so quickly that I almost don't have time to lick the stamp to send them before the money is in my account. For some reason they often get priority in scheduling, and it's hard not to do the occasional spontaneous favor for someone who has you covered this way.

But do I blow off a customer who wants to pay me in 29 or 30 days or think ill of them? Certainly not. I screen the people and projects I work with carefully, and even the occasional customers who make timely payment after a month are part of a circle I appreciate deeply.

7 comments:

  1. Kevin,

    No problem with 30 days per se. I am also grateful to regular clients who pay within 30 days and not later. But when I see that not only direct clients, but also good AGENCY clients, are paying much earlier than that (although they are not forced to by any legislation or contractual obligation) I realize that those who wait 30 days may be either too lazy or too bureaucratic (I'm excluding the possibility that they might be getting bank interest on the money they already got from the direct client). It is simply a matter of sorting out the better paying clients from those who stick to longer payment terms - exactly the way clients are used to selecting the best translators based on whatever criteria they see appropriate.

    Of course, I am only talking about clients in the DACH countries, who usually pay either within 14 days or 30 days. I've giving up working for certain countries with an unfavorable payment ethic.

    It's not about cash flow. It's about selecting clients using your own criteria when you can afford to do it. :-)

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  2. OK, I can see that. As I mentioned, I do indeed favor the fast payers, who in some cases just happen to be the most interesting ones to work with. But as long as the payment arrives within a 4 or 5 week period, I really don't care that much. Factors such as the quality of project management or subject areas get more of my attention.

    But then each can choose his own criteria and the balance of these.

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  3. Agree with you in general on payment terms and the fact we operate in B2B contexts and all that goes with it (said so myself here).

    I'm less convinced about voluntary discounts. I think it sends the wrong message in two ways. One, it can make the freelancer look as though their own cash flow control is lacking, if they are so desparate for money that they will forego a handful of euros to get it sooner. Two, there are enough companies in the wider economy unilaterally imposing such discounts on suppliers just for paying on time, i.e. at the end of a period they have decided (see e.g. see the Argos entry here), that I think to voluntarily enocurage the practice would be a mistake, notwithstanding that we should try to work with decent clients who don't impose (too much) unilateral anything. But if the word goes around that "everyone's doing it"... then what?

    However, my strongest belief is that we should all run our businesses how we jolly well like, so as you were.... :-)

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  4. Charlie, I agree with you that it's important to be careful of the message sent. The ones who get the 2 or 3% early payment discount are usually the ones who pay early anyway and at rather sustainable rates. This is certainly nothing I do to encourage those who are on the lower end of the scale to pay less or to take the 30 to 45 day crowd and try to teach them "better" behavior. As suggested in the post I did indeed use this as a tactic to deal with a cash flow problem with some new clients, but other information I had on them indicated that they probably would have paid within a week anyway. So you might say I was rewarding the good practice that was already likely to occur.

    There's another strategic element to offering these little payment discounts from time to time. It tells me a bit about how organized and businesslike the client is. Maybe also something about the client's own cash flow situation without having to do much more digging. Do the math and think about it. What's the equivalent annual return for what is saved with a 2% early payment discount. What sort of interest or return on investment is typically considered achievable and good? What circumstances would lead someone not to take advantage of such a discount? The answers to these questions can be very important. This is about a lot more than bringing in the cash fast or even rewarding the nice clients.

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  5. Hmmmm.... OK, I can half-agree with that second para. By which I mean, that while I would agree that a customer who takes advantage of such a discount is probably well-organised and businesslike and so on, I'm not sure that a failure to do so is necessarily a reasonable indicator of chaotic amateurishness. So a clue, but is it a better clue than just being paid the full whack on the due date?

    I'm cool with discounts for repetition, and I'm down with discounts for no reason other than 700 euros being a rounder number than 703.51 (altho I can appreciate the arguments against both), but once the final figure is arrived at and agreed, I am very much uncool with tampering with it :-)

    (Oh, and it's a bit late in the day, but can I just wish you a peaceful and restful Easter, what's left of it, anyway.)

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  6. Just as importantly, Charlie, € 700 is rounder than € 687.23, and € 699 sounds like a cheap paint job advert. Numbers have an interesting psychology.

    In the DACH countries, many customers have learned to live with the ambiguity of target line pricing (a traditional practice), so "not to exceed" quotations are an easy step for them.

    If someone is organized to pay a small (or large) sum exactly on the due date but passes up the good return offered by a modest early payment discount, I do have to ask myself why sometimes. Of course this is just one clue of many, but even with only two incidents of nonpayment in 11 years (one a scam, the other an unanticipated bankruptcy), I try to keep alert for any information that is available. Others go much farther; I know one person who does detailed background checks on nearly every new client and digs up dirt I don't think I could find if I tried. His record of non-payers over the past decade is even better with an annual volume an order of magnitude higher.

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  7. Keep in mind, for a lot of agencies their "cash-flow issues" are due to non-payment by their customers in turn. It happens mostly on larger jobs, where the deliverable and invoice aren't produced until 90-120 days after the project begins... but translators still expect their payment in 30 days (1/2 way through the project). It's hard for smaller agencies to absorb those costs if they don't have significant cash on hand, or a line of credit.

    We always try to pay inside of 30 days, and from what we've heard from our translators, that makes us unusual.

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