In business when you’re done doing work, you send out an invoice complete with a payment term which is how many days you allow your client until they’re supposed to pay you in a system called Accounts Receivable. We track all of it down to the invoice and client levels. The higher your AR, the more money you don’t have that you’ve already done work on.
Your goal should be to get your AR down as low as possible and that doesn’t mean just not working for the clients; it means collecting your payment as quickly as possible. We are moving towards net 0 which is how many days you give your clients in order to pay their bill which means on the first of every month, we bill their credit card or ACH and then do the work for the rest of the month. That’s what we’re doing for all new clients but we have old clients who are on terms.
When Erik first started working for himself, he followed the terms that the government does which is net 30 meaning he wouldn’t get paid until a month after he’s started work for the client. This means you have to bankroll your operations which, as a one-man show isn’t so bad, but when you have a team, it becomes a problem.