The rules of play

When I started my first company in 2002, my start-up capital was equivalent to a stardard car payment which really isn't enough to start a business, and was going to last all of about 5 days. I had to make a plan and I really didn't want to borrow money from a bank/friend/family member/venture capitalist/loan shark.

It was my understanding that companies invoice their clients at month end and the clients would pay whenever it suited them after that date. I had a client lined up already, but I couldn't survive past my first month without more cash, and if the client had taken their time with payments I would have been thrust into a cash flow problem. (In case you don't know, cash flow is one of the biggest killers of business start-ups and those that survive can take years to recover from a cash flow hit)

I spoke to a person who had been a bit of a mentor/inspiration to me and he taught me the following invaluable lesson, "You must define the rules of play. The terms of business are detailed in the contracts that you draft. You set the rules and all your client needs to do is sign."
(This was followed by a stern warning to be fair and to never abuse your clients)

With a new outlook on business I went to the contract signing meeting with my very first client. I politely explained that my retainer is payable upfront at the beginning of the contract. "These are my terms" I said trying not to tremble. To my absolute amazement the client agreed that was fair, signed the contract, and wrote out a cheque.

Almost 5 years later and the same client still pays me upfront for all my services and (touch wood) we have never had a cash flow problem. Such a simple thing like being paid a few days earlier can save a company tremendous hassles!