So you’ve started your business (preferably an LLC early on to benefit from some of the flow through tax-wise). 3 months in, you and your co-founder have signed your 1st paying client; excellent! You’re negotiating payment terms, and the advocate asks if can they do monthly invoicing.
Although the frequency of receiving payments monthly isn’t an issue, the added time that comes with following up on 12 receivables from one client can leave you spinning your wheels. Here are a few suggestions to avoid the time suck:
Although you may be a bit short on leverage, this is the time to counter with quarterly, semi-annual, or annual-with-a-discount billing.
Ideally you’ll want to spend most of your time working on the business, and the last thing you want is to turn your one client into the accounts receivable equivalent of twelve annual clients. Time is precious in a startup. A bonus of receiving a larger chunk of cash up front will allow you to invest in other areas of the business faster.
2. Alternative Payment (i.e. credit card)
This accomplishes two things, receiving payments sooner, and it aligns with the clients outflow needs. Although receiving roughly 3% less of the MRR is not ideal, it’s absolutely worth it to receive payment easier, quicker, and with less touch points (as far as receivables are concerned). Having cash on hand to run your business might literally be the most important thing for your business, so keep companies like Stripe, Chargify, Recurly, Quickbook Onlines payments in mind.
3. Push, but don’t let the deal fall through
Honestly, sometimes a client unwilling to do monthly credit card and threatening to walk away from the deal solely because of it could be a red flag. Sometimes there may be legitimate constraints depending on price or their control structure, but be diligent in asking the right questions.
Ask the right questions
Things to consider before accepting monthly invoicing:
- Make sure you’ve at least countered and offered an alternative
- Consider the Industry standard for your type of service billing
- Your position in the space
AKA have you been around for a while and can leverage that authority or are you just starting out and don’t have as much wiggle room.
Overall whether it’s client one or client 100, you’ll want to structure things early on to where you’re receiving payments quicker and easier, so you can focus primarily on providing the greatest value for your clients.