It has been called the silent killer of Kenyan SMEs, summarized in this disturbing Soko Directory Investments Limited infographic I came across through Anthony Kuria. Securing business is hard enough in this economic climate, getting paid for the business can often be the straw that broke the camel’s back.
There are many great clients out there, but let me highlight some lessons from the not so great ones.
Example 1 – Owner of a regional transport business agrees that we provide a training solution for this staff and consulting solution for his business. We start eagerly and meet several deliverables. However the owner is not paying as per agreed schedule, there is always an excuse. Wife is delivering, guy lost a relative, resolving a major accident, on and on. So months later we called off the assignment with only a partial payment received.
Example 2 – A government body signs up their team for a training program. Payment is supposed to be in advance, but they say the law does not allow them to do so given that the procurement and contracting process was not done for this open program. Training is done, the reviews are excellent, invoice is submitted. 1 debtor day becomes, 50 then 100 days and more. Finally, I discover the invoice was approved but payment was made to an account that ‘cannot be traced’.
Example 3 – A private corporation registers their staff for a training program and ask for a tax invoice. We focus on collecting payments from other ‘shakier clients’ since this client is a well known corporate brand. One staff from the corporate misses the training without cancelling or communicating. The company refuses to pay for the staff who missed, we protest the lack of cancellation since we reserved the seat and incurred costs as a result. We issue a credit note on condition that the payment is settled immediately. It takes an unbelievable 160+ days from the date of the initial invoice to get paid.
Some lessons learned from these examples;
1. Sign a formal and legally binding contract for
2. Insist on written commitment of payment from those large organizations that have long & bureaucratic processes. Formal LPO or commitment letter reduce disputes later.
3. Anyone else must pay in advance, if they need a payment plan let them make a sizeable down payment and commit how to settle the balance in writing.
4. Doing due diligence before taking up projects, some are well known for no payments or graft laden processes. For example we dont deal with county governments, no thank you please.
5. Assume there will be delay in payments and factor it into your costs and financial planning.
6. Dont be desperate for business that you break the your own due processes or that of the client organization. Any gaps will be at your risk not theirs.
7. Diversify your client base. Focus on B2C clients who might be smaller but always pay at point of sale rather than only B2B clients who have longer payment cycles.Activate to view larger image,
BLACK HOLE OF DELAYED PAYMENTS
