Consulting Income Report: September 2012: Getting paid faster, and the worst part of my business
As many of you know, I share my consulting income details for a few reasons:
- To keep me motivated. 🙂
- To be transparent, and show you both what’s possible as well as mistakes made.
- To inspire you to take action and start or grow your business.
If you’re just starting out, building a business will take hard work, patience, and persistence. But the rewards can be far beyond what being an employee can provide.
This month’s numbers
Overall, my consulting income was a little less in September than August (by about $700), but August’s higher total was mainly due to selling 2 tools that bumped up my revenue, earning me a quick $2,900. I had to create one of the tools, and the other tool I’d already created, and had to tweak before it was client-ready. But even considering that development time, selling those tools boosted my hourly rate last month to about $195/hour–about 15% higher than my average hourly rate. Pretty good. However, even though I can sell those tools to other clients, and few of my clients need them, since they fill a pretty narrow niche.
Here are September’s numbers:
- Total worked: $15,351.25
- Average hourly rate: $166.41
- Number of clients billed: 7
- Average days to bill (this is the average number of days between when I actually do the work and when I bill the client): 9
Those numbers have been pretty similar over the past 3 months, which is good, since it makes my cash flow more consistent.
Getting paid faster
One number that’s gone down and stayed significantly lower over the past 3 months is my average days to bill, which has gone from about 21 days down to 9 days. Like I mentioned in last month’s income report, I’ve shifted to invoicing my clients 2 times per month (around the 1st and the 15th of the month). As a result, even if clients take the same amount of time to pay an invoice, I convert my time to cash 11 days faster–so, essentially, I have to a shorter wait until I get paid for my work.
In addition, with the twice-per-month invoicing, clients have been paying quicker. Aside from a couple small outliers which skewed the average, I’m getting paid about a week faster on average per invoice.
I also mentioned in August’s income report that I’ve started to require a 50% deposit before starting work on projects (for new clients only). I haven’t had any new-client projects for which I’ve done this yet, but getting paid BEFORE the project will certainly help with cash flow and getting paid faster.
The worst part of my business
Collecting unpaid invoices is one of the most difficult issues to deal with, and is probably the most stressful part of running my business. Sometimes, after or during a project, a client won’t pay for a variety of reasons. Maybe the outcome wasn’t entirely satisfactory; maybe they haven’t had time to test and confirm that everything is in order; maybe they have cash-flow issues of their own. Sometimes, it’s hard to know why clients don’t pay.
In any case, the longer an invoice sits unpaid, the less likely you are to collect on it. So, I make a habit of following up regularly on unpaid invoices, gently reminding clients–over and over and over, if necessary–that their invoice is past due. This still isn’t easy for me, the whole asking for money thing, but I’ve gotten better at it with practice. But I’ve found that for myself and virtually everyone else I talk to, asking for money is difficult. We all have our reasons, but virtually no one likes asking for money.
Now, I had a client who asked me to develop a bunch of custom functionality. The project had its bumps and hiccups, and eventually the client decided to buy an off-the-shelf solution instead. However, I’d already sunk in a significant amount of time–60 hours. I’d already written off over half of my time, and had made the write-off clear over the course of the project (I display discounts and write-offs prominently on my invoices).
The net amount of the invoices, after write-offs and discounts, was $4,200. Not chicken feed. I expected to get paid for some of my time, but since the project went poorly and the unpaid invoices had been unpaid for several months, I mentally assumed I wouldn’t get paid for them. I figured I’d ask for half of the $4,200. My wife–wisely–said I should just as for the full amount; mentally, the thought of doing that made me cringe.
But I did it. I called the client–who I’ve known for several years–and talked matter-of-factly about the project, the my discounted time, and the unpaid amount. And I asked for the entire $4,200. Not easy, but I did it.
Did they pay? Well, my contact at the client had to review the invoices and my time on the project, discuss with the partners, etc. So, I’d call her every week or 2 to follow up and see where things stood. I put the call on my calendar to remind me, but it was still difficult to follow up. Even though the client was always pleasant, warm, and friendly, I dreaded making those calls.
But I did it. And eventually, about 6 months after the project finished–I used that word loosely–I got the check in the mail. The entire $4,200. I felt relieved that I didn’t have to make those collection calls anymore, and happy to get the windfall of money. I still have one last client who owes me money, but that’s a story for another day…
Now I know why Don Corleone hired people to do this kind of thing.