Ensuring timely payments and managing overdue invoices takes strategy and skill, say these engineering business owners.
Cash flow is king. The timely payment of invoices keeps the river running and any delay means trouble down the line. Mastering the art of smooth financial management pays – literally.
Getting paid on time requires a strategic approach, some forward planning and effective communication. Here’s how three engineering entrepreneurs ensure their coffers stay healthy.
1. Set clear payment terms from the beginning
Invoices with one- or two-week payment periods are standard, with terms agreed with both parties upfront.
Max Möller, who founded the consultancy agency Flüssig Engineers in 2019, issues invoices with a two-week payment window and follows up with a friendly automated reminder a week later to ensure the invoice remains on his client’s radar.
“Consistent communication and firm but polite follow-ups can significantly improve payment timelines,” he said.
Sascha Kurz, founder of engineering and project advisory services IPS, holds an initial onboarding meeting with clients to discuss payment terms.
“We talk about invoicing dates, required details and the format, so everything is clear to the client before the first billing cycle and there are no surprises,” she said.
2. Have solid internal processes
Brendyn Williams, founder and principal of engineering and management consulting firm Pentagon Management, emphasises the importance of prioritising invoicing in his business processes.
“With 25 years’ experience as a small business owner, I have learned that invoicing is just as important as doing the work if you want to get paid.
“The faster your company grows, the easier it is for invoicing to fall behind, especially if you have the comfort of cash in the bank. However, the longer you delay sending invoices, the higher the risk of payment delays.”
Good administration and procedures ensure invoices are always sent out on time, Kurz added.
“This means that even if multiple contracts come in at the same time, you’re still on top of everything.”
3. Keep your clients in the loop
Letting clients know the anticipated value of an upcoming invoice and when they can expect it can help them prepare to receive and, hopefully, pay on time.
This requires some forecasting on your part but can spare you from difficult discussions and late payments down the road, Kurz advised.
“If you’re likely to invoice them for around $60,000 next month, inform them in advance. This allows their finance team to prepare and allocate funds accordingly.
“You want to avoid surprising them with the invoice, especially if they are a smaller business.”
4. Charge by project or by the hour
Sometimes it’s possible to define and quantify the scope of work in advance, enabling companies to charge a fixed price for a project. When this isn’t the case, charging by the hour or day may be more suitable.
With investigative and analysis work, Williams prefers to bill clients on an hourly basis, with rates agreed in advance commensurate with value. This approach ensures he charges only for the actual time spent, avoiding any potential overestimation.
“Agree on the fee structure upfront with a client, and keep them regularly updated.”
5. Prioritise relationships
Often, the individual handling invoices is not the same person you collaborate with on the project.
“It’s critical to build a good rapport or connection with your direct client representative, even if someone else is responsible for approving invoices payments,” advises Williams.
“I’ve encountered situations where additional work was requested by a client, or additional work was necessary to achieve project objectives, exceeding original budget estimates. The client rep went into bat and fought for a variation to be paid, arguing that good value had been delivered. This outcome may not have been possible without a good working relationship.”
Client representatives often change periodically, so make an effort to understand each person you deal with, and what they value, Williams added.
6. Request payments in advance for new clients
When handling the uncertainty of new clients, Möller requests payment in advance, or at least before delivering the final work.
“This approach minimises financial risk and ensures your business remains sustainable,” he said.
Williams has done the same.
“For new clients I haven’t worked with before or who are unknown in the industry, I ask for a security payment upfront.”
7. Allow flexibility (within reason)
Even with solid procedures, effective communication and good relationships, chasing up late payments can be an unavoidable reality of managing your own business.
Late payment fees are legal if they are reasonable and clearly outlined in your terms and conditions or original invoice. Often a gentle reminder of these terms can encourage payment.
But when a client simply seems genuinely unable to pay, the situation can become tricky.
Williams tries to allow some flexibility, particularly with a regular client.
“Good relationships go a long way. I always take a position of empathy and understanding so that we can work together to find a solution.”
Möller said being flexible can generate loyalty over the long term if the client is struggling.
“We tell our clients that if they have issues paying, we can help them to find a solution. This approach has fostered loyalty among our clients.”
And if it goes wrong?
If clients refuse to pay, you can take legal action, including sending a letter of demand and starting court proceedings. Procedures and guidelines vary slightly according to your jurisdiction.
