Foster Strong Client Relationships Building strong client relationships based on trust and open communication can help facilitate timely payments when disputes about services arise but should not become a part of collections. Addressing any concerns promptly is essential, but we want to emphasize that a strong client relationship is one that mutually respects the parameters of a business relationship. PMs and project leadership should be brought in to discuss the material substance of the invoice or address concerns, not to call and ask their clients to pay their bills on time. This comes back to serving the right clients well. A client who values your services and believes in your professionalism will also believe in your willingness to enforce your contract terms and be paid without the relationship souring. Capital Management Fees If a client has a track record for not paying on time, or if collections is a pain point particularly for your firm, consider establishing a standard capital management fee clause within your contracts for negligent collections over a certain amount or after a specified number of days. Essentially, charging your clients a capital management fee entitles you to sell their debt to a firm that specializes in collections at no cost to you. The capital management firm pays you the client’s outstanding amount, and the client pays the capital management firm’s fee and the debt owed to them. Education, Training and Transparency with Project Leaders Sharing data and providing training for your project leaders who negotiate and sign contracts, and project managers, who are often placed in the position of collecting, is key to their success in controlling project profitability. There is a lot written on the topic of how much of the firm’s financial information to share, with whom, and for what purposes. Building a culture of transparency fosters trust in employees, and in return creates a stronger drive to work toward shared goals. Some recommended information to share: Profits and losses – breakdown in an abbreviated version, focusing on EBITA (earnings before interest, taxes, depreciation, and amortization) and a narrowed look at expenses, like combining payroll, benefits and wages into one number. Best to do this at least quarterly. Goals – this is firm goals and employee goals, and seeing how they can align in one-, five-, and/or 10-year plans. The business – this includes prospective clients, challenges in the marketplace or with competition, business and delivery processes, and the overall health of the firm. This will lead to better engagement from employees when it comes to strengthening the firm. Outside of the firm, encourage PMs to take a mini-MBA course or other business- centric training. Recommend to summer interns and/or through student outreach and mentorship programs that they should take at least a semester of managerial accounting or a course that outlines some of the same material, especially if the university does not offer any thorough practice management courses. By establishing clear payment terms, implementing efficient invoicing procedures, enforcing late payment penalties, monitoring collections, and fostering the right client relationships, firms can minimize the risks associated with delayed payments and maintain a healthy financial position – and thrive rather than survive.
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