Never pre-pay 100 percent for a service
This one isn’t even about cashflow management. Simply put, if you pre-pay for a service and the company fails to deliver, you’ve lost all possible leverage in negotiating a make-up, do-over or make-good. I’ve made this mistake at least twice over the last decade: once pre-paying for an advertising campaign that was delivered using automated bots (100 percent fraud), and the second time when pre-paying for a direct mail campaign and then having the vendor (who had been in business for over 10-years) declare bankruptcy halfway through fulfilling our campaign.
Negotiate 30, 60 or 90-day terms whenever possible, and if you absolutely must work with someone who demands payment upfront, break payments into small chunks based on deliverables to protect yourself.
Fire bad vendors, quickly!
It’s human nature to want to give people and companies a 2nd and 3rd chance when they fail. Switching vendors is a huge and time consuming hassle that doesn’t generate revenue or customers, so the natural inclination is to avoid doing so at all costs. However, when mission-critical business functions are at stake, don’t ignore the warning signs. We had a distributor that stocked SitePoint Books and shipped them on our behalf when our customers placed an order online. After messing up orders on a consistent basis, and on a couple of occasions losing orders or not fulfilling them for a week or more, we knew it was time for a change. We found a new vendor, negotiated prices, reprinted all of our books and stocked them at the new warehouse, and modified our ecommerce system extensively to send all orders in a new format to the new vendor.
Thankfully, our timing was perfect. Just as the switch to the new distributor was being completed, our original warehouse shuttered its doors, locked out its employees, and locked-in our inventory with absolutely no notice. Hundreds of other small businesses who weren’t as fortunate as ours scrambled cross country in rented vans and trucks to pick up their products and transfer to a new shipping facility, leaving them unable to do business for a couple of weeks in some cases. We dodged a bullet!
Don’t let bad debts accumulate
Everyone loves orders and generating invoices, especially in the early days when your company is running on a shoestring and every dollar counts. I once had a client who kept buying, more and more and more, signing contract after contract. I was so happy to get the orders and the renewals, that I paid little attention to all his overdue invoices. Eventually, after accumulating tens of thousands of debt, they simply went silent and fell off the earth of this planet. Saying “no” to an invoiced and signed-for order is hard, providing tens of thousands of value and not getting paid for it, is even harder.
Matt Mickiewicz started his first company while still in high school, and has leveraged his early success into 3 internet profitable businesses over the last decade. Matt is an avid traveler, frequent speaker at conferences, and was named to Inc Magazines 30 under 30 list in 2011.
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the country’s most promising young entrepreneurs. The YEC promotes entrepreneurship as a solution to youth unemployment and underemployment and provides its members with access to tools, mentorship, and resources that support each stage of a business’s development and growth.