You're a craftsman, not a bank
The number one reason businesses fail isn't bad work, bad luck, or a slow market. It's running out of cash.
It’s not because they are not making a profit or running out of customers. It’s running out of cash — the actual dollars in the actual account on the day payroll is due.
And in the trades, the most common way that happens is a company’s accounts receivable gets out of control.
The pattern to pay attention to
Here's something we see more often than you'd think: a business carrying a large balance in accounts receivable that is also drawing on its line of credit.
Read that twice, because it's worse than it sounds.
You're paying a bank interest to borrow money while handing your customers free credit on money you already earned. The work is done. The materials and labor are paid for. The invoice is sitting at 60 days. And to cover the gap in the meantime, you're renting money at a rate that would make you wince if you ever saw it written out as an annual dollar figure.
You're financing your customers' cash flow with borrowed money, and they aren't paying you a dime for the privilege.
It isn't only unfair to you
Your crew shows up Monday whether or not that check came in. Payroll isn't a maybe. Neither is the supplier who wants his money in 30 days even though your customer takes 60.
When receivables slip, the pressure doesn't stop with you. It shows up as the raise you couldn't hand out, the truck you kept limping along another season, the good hire you passed on because the account looked thin that month.
Three adjustments that can help
Stop writing "Due on receipt." It feels firm. It isn't. There's no date on it which means there's nothing to be late against and nothing to enforce. In practice, "due on receipt" gets read as "whenever you get around to it," and it quietly becomes the most generous term on your invoice.
Use Net 7 or Net 15. Not Net 30 out of habit. For most direct-to-owner work, the job's finished and the customer has exactly what they paid for. So ask yourself what the extra three weeks is actually buying you. A specific short date is easier to enforce than a vague long one, and most customers pay on whatever date they're handed. (If you're subbing under a general contractor, your terms may be locked by the contract. That's a different fight. But on work you sell directly, the term is yours to set.)
Put a late charge on it. A finance charge on overdue invoices is what turns a payment term from a suggestion into an actual term. Without one, paying you late costs your customer nothing which makes late the rational choice for them, even if they like you.
One practical note on that last one: for a late charge to hold up, it generally needs to live in the agreement your customer signed, not just appear on the invoice after the fact. Get the language into your estimate and contract, and confirm the rate you're charging is permitted in your state. That's one conversation with your attorney, once, and then it's handled for good.
The mindset underneath
None of this is about being hard on people. Most of your customers aren't trying to squeeze you — they're paying on whatever schedule you appear to accept.
That's the part worth sitting with. Your terms tell your customers how you expect to be treated. When the terms are vague and no consequence is attached, you've told them the date is flexible.
You got the job and bought the materials. You ran the crew and delivered the work. Collecting for it on a clear timeline isn't aggressive — it's part of doing good business.
You're a craftsman, not a bank. Price the work like a craftsman, and collect like one too.
Prosynergy Bookkeeping works with trades and small businesses across the US. If you want a straight answer on how much cash is currently parked in your receivables and what it's costing you, we're glad to take a look.
Comments