How I got my clients to pay within 30 days
Alfa Aminudin is chief executive of Reseau, a Perth-based IT services company turning over nearly $2 million a year.
Business is taking off, but one of the hardest parts of growing has been getting clients to pay on time. Using a bit of ingenuity, Aminudin reduced the company’s average time for receiving a payment from 90 days to just 30 – and he says other businesses should try his methods.
So how’s the business been going?
We just keep getting stronger. We’ve just put on another sales person, and we just won a fairly sizeable contract for V8 super cars, so we’re doing very well. It seems we’ve got a lot more work than we can get to right now.
Last year you were turning over about $1.5 million. Any update there?
I think we’ll be closer to $2 million, although the figures haven’t been finalised yet.
I think the bigger thing though is that while turnover has been quite good, our profitability has been great. We’ve had a 300% growth in profitability, so everything is getting better there too.
So talk about what happened at the start of the business. Your payment times were getting blown out to about 90 days.
The life of the business is cashflow. If you don’t have good cashflow then not only are you going to find it difficult to grow, but it just makes everything else difficult as well. Back when we were starting and in the early days, those were the challenges, the stress of how we were going to get everyone paid.
At times I was putting my own personal money back into the business in order to cover wages, let alone cover tax obligations and super obligations. It doesn’t just make it difficult to grow, it makes it difficult to operate full stop.
So you were propping up the business for a while.
So I was a silent partner in the business for the first few years, and then I decided I had to just move my focus to strategy rather than payments and day-to-day stuff. I had to create a process where it wasn’t reliant on me anymore to chase things up.
What kind of payment process did you have in place at that time?
Well, we didn’t have any terms or conditions. I think at that stage of the business we were just happy to take on new clients to get the business happening, so we weren’t very selective with our clients. We weren’t rigid, and we were very under-resourced in terms of administrative staff.
So how did you fix it?
The first thing I did was just set some concrete conditions. I had learned a little about the process on my own, and so I went overboard a little. I set our payment terms at seven days.
That’s a pretty drastic and unusual change.
Yeah, we went from having no real terms and conditions to having them call in within seven days.
Did that even work? Did you expect it to?
Well, I set the terms at 5% interest per week, which I later found out was illegal.
But the point wasn’t to charge interest; it was to create a benchmark which I could then communicate with clients around. So if I set my days at 30, it wouldn’t be until after that 30 days that I would talk to clients. So I would set it at one week, and then at 30 days I would go back and say, “it was a week, you’ve had three weeks extra”.