Dealing with Debts
G: Yes, you are right. There is one more important issue. Probably, you won’t like it. We always pay within 30 days after the completion of all work.
J: You are right! It does not please me at all. Look, I will complete all the work in 5 months, and then I have to wait for another month until I get the money from you. In total, for six months I should live without money. Not fun.
G: What doesn't suit you? Everybody does that. This is a common business practice.
J: You know, when I was a schoolboy, sometimes I told my father, “Everyone does this.” He answered, “If everyone jumped from the roof, will you also jump with them?” I can’t afford half a year of waiting for payment. Moreover, it’s not a fact that your company will pay me then. This is, by the way, also a “generally accepted business practice.” Let me ask you a question: what might happen to the company if it pays me monthly, for each stage of my work?
G: This is not a problem. If at the end of each stage you can show some specific results, the company could pay for each stage as a separate work product. But it still is Net-30.
J: What might happen to the company if it pays without delay?
G: No way. We have a clearly defined procedure for paying for supplies and services. Suppose we are talking about your training. As soon as you have completed the first stage of work, I write an invoice and submit it to my boss, with my report on results. He approves this invoice and passes it to accounting. There it is checked, endorsed by the chief accountant and CFO, and sent to the finance department. The finance department writes a check and sends it to you.
All these procedures, along with sending the check to you, take about a month. Sometimes it goes faster, but sometimes there are delays, no longer than a week. It is impossible to get around this procedure, nor can it be accelerated. So, you have to accept this.
J: Do you also receive money from your customers with such a delay?
G: No, they pay immediately, as soon as we deliver the goods to them.
J: Aren’t they trying to pay you later?
G: No, it doesn’t work for us. If they try to delay the payment, we fine them, 2% for each day of delay. And after the third delay, we stop delivering our goods to them, that’s all. But this is OK, they have a much simpler management system. A person responsible for procurement immediately writes a check on our invoice.
J: Interesting! Well, I’m not going to reengineer your management system, but let’s see how to get payment from you at the end of each stage of work. I do not ask for prepayment, but I also can’t wait to be paid for my work. On the other hand, I would not want something to happen to you if you pay me right away, every month, according to a certain schedule.
So far, we have this chain of events: You draw up an invoice upon completion of the stage; You report to the boss the results, and he approves this invoice: Checking this invoice takes time; Then signing this document also takes time; When the invoice is approved, a check is issued; Mailing a check also takes time. Did I get everything right?
G: Yes, that’s right.
J: Well, we can deal with this. First question: how to prevent the transfer of the check taking long?
G: It’s easy. Instead of sending the check by mail, I pick it up in the financial department and give it to you personally. This can save 3 to 5 days.
J: Wonderful. But how to avoid writing the check taking so long? And by the way, how long?
G: Once I came across this process of signing. All invoices are collected to a folder, and then once a week, on Wednesday, it is transferred first to the chief accountant, and from him to the CFO. The chief accountant signs the documents on Fridays, and the CFO on Thursdays, then the folder is sent to the finance department on Friday, and checks are written out on Tuesday. It turns out that the checks are ready on Wednesday, two weeks after sending the folder to the chief accountant.
J: Why it is so?
G: This procedure was established long ago, and now it’s impossible to find out why. The fact is that now all invoices follow this procedure, and there is no chance to change it.
J: And how to accelerate this process? Is there really no way? For example, walk the invoice to each of these people and ask them to sign?
G: Honestly, no one has ever tried to do this. Probably, this requires a very good reason.
J: That is, if there is a good reason, then you could collect these signatures in one day, right?
G: Well, maybe!
J: Sounds promising. Next, how could you make sure that having your invoice checked in accounting does not take long?
G: It is not so difficult. Take the invoice from “general flow” directly to the accounting department, show that the amount does not go beyond the budget, and get their approval.
J: Well, yes, in order for the document to go faster, it should be delivered to each point personally. And how long does it take to approve an invoice with your boss?
G: It’s fast. I go to him, report on the results, and get his signature.
J: As you could see, there is at least one way to pay me on time. It is great! But this approach depends on your actions, and therefore on your motivation. Why should you take on all this burden? Isn’t it easier to pass the invoice along the generally accepted procedure? It is much easier. So, this solution, so far, is no good. Very soon you’ll get tired of running around with these papers and persuading everyone to violate the procedure. What is missing in this solution? Your motivation. We’ll look for it now.