My Experience: The Pitfalls of Automation and Trust

Every entrepreneur values the lifeline that is cash flow. In one of my more recent businesses, I felt we had mastered this essential artery of business with a sleek, automated process complemented by a manual follow-up system for outliers. This system worked flawlessly (or close enough to it), and allowed us to manage outstanding invoices comfortably and reliably, for 99% of our clientele. Then came the anomaly, a scenario that, in retrospect, had red flags all over it.

We were working with a particular client, and the managing director (MD) who was directly handling our invoices, spiralled slowly but surely from standard to problematic throughout our engagement. Over time, he developed a habit of part-paying invoices which, at the time, seemed like a minor hiccup. Our automated reminders, however, were not designed to navigate the nuances of partial payments, leading to a cascade of unintended consequences. Upon receiving repeated reminders for amounts he had partially settled, the MD's patience wore thin, leading us to disable the automated notifications for him. It was a decision that coincidently coincided with a sudden and complete halt in his payments - we just missed out on the automated updates we relied upon delaying visibility. Given I’d missed the earlier warning signs, nothing would have changed the outcome but nonetheless, it was a rather unpleasant experience receiving advice from the client that they had gone into administration, leaving us with a significant loss from unpaid invoices.

What I've Learned: Strengthening the Foundations

This experience was laden with hard-learned lessons. The most important being that if a client is part-paying invoices you want to rule out a cash flow problem as the reason. Real quick. It also underscored the necessity of a robust debt recovery process, one that remains consistent regardless of individual client circumstances. And highlighted the need to be curious at the very least if any client asks for this process to be altered.

Stepping back to look at the bigger picture, we also took steps to protect the business against unproven clients. We amended the commercial terms for engagements with new clients, incorporating upfront payments to mitigate risk. Finally, we learned that it doesn’t hurt to make friends with the people in your clients’ Accounts Payables team. It’s amazing what they’ll share if you’ve got a good relationship.

TL;DR:

• Automated cash recovery processes are a must, and they shouldn’t be varied for anyone.

• Immediate scrutiny of partial payments is vital to uncover potential client cash flow problems.

• Maintain a rigid debtor process and consider secure payment terms upfront with new clients to safeguard your business’s financial health. Cultivating relationships within your clients' finance departments can offer unexpected benefits.