Frustrated by time-to-pay timelines?
Does your working capital project funding need to be so high? When you complete the large deliverable, it can take a few weeks to gain sign-off from client team. When you issue an invoice based on the approved deliverable, it can take a few weeks for the invoice to be approved, Once you have an approved invoice, it can take 30-60-90 days to be paid.
The North American average is 73 days for payment from approved invoice. This figure is doubled if you include elapsed time from when you paid your employees or contractors for the work.
Time From Work Performed To Payment can be Four To Five Months
The right relationship
Slow payment is a symptom of the friction in the engagement and project delivery processes. The source of that friction is the contracting approach. It drives high costs for both parties and is the root cause of slow payments.
The contracting approach discussion is about improved alignment and managing trust more effectively. Addressing this fixed the slow payment issue. Clients receive better outcomes for their investment.
This is a win-win. We have a solution that works for all parties.
Five ways to earn back working capital and Improve relationship
The switch to collaborative contracting compress the time to pay (from work performed) from 4 to 5 months to three weeks. What does that mean to you? Can you take on larger projects and potentially more at a time? You can be assured that you will always have the cash to make payroll. What will improved working relationship mean to your business?
The 5 steps to improve the work-to-payment timeline and business relationship:
- Rapid contracting
- Two week contracts
- Contract and invoice approval as one step
- Addition of dispute resolution
- Financing of contracts or accounts receivable.
What will you do with the working capital you earn back?
More detail on the five steps to improve the work-to-payment timeline and improve the business relationship:
- Collaborative service agreement: This is a standard neutral agreement. i.e. no bias toward customer or service provider. They are vetted and supported by multiple commercial lawyers that attest to their neutral position (in progress).
- Choice of negotiation process: a) Neutral Advocates (neutral third party) can facilitate a conversation between the customer and service provider to fast track the legal terms conversation. b) the commercial lawyers familiar with the contracts can represent either party in the discussion. Or c) use standard process of back and forth between negotiating teams and lawyers.
Introduce two week contracts :
- Contract using contracts in context of a macro-contract (similar to a MSA). Both parties are jointly accountable for fixing the triple constraint for activities in the two week window and successful delivery. i.e. both parties are jointly accountable for input quality, estimates, dependencies, risks, issues...
- At the beginning of each two weeks, the two parties facilitated by a neutral advocate (at least initially) will take 30 minutes to agree on the work commitments.
Integrating the sign-off of the contract and invoice as one step:
- At the end of the two weeks, both parties with a neutral advocate (at least initially) will sit down for 30 minutes to discuss delivery accomplishments and related financial implications. Based on a set of standards around joint accountability and individual responsibilities, they will agree on the contribution towards under and over delivery.
- The contract will be approved by the team and the invoice will be ready for payment. Any significant go-forward work will return to the backlog and may be prioritized into future contracts.
Add dispute resolution
- The neutral advocate role is a 3rd party who is not a decision maker. The neutral facilitates the joint accountability conversations between parties at major contracting events.
- If no mutually acceptable agreement is created, then parties have the "expensive" option to seek binding arbitration (time constrained).
- The approach is to ensure that solutions are agreed and issues get resolved quickly.
Financing of contracts or A/R
- For qualifying customers, contract financing or accounts receivable (A/R) is offered. This ensures service providers are not waiting 30-60-90 days for invoices and are getting paid within 24 hours.
The Five Steps Improve Your Relationship And Financial Bottom Line
The transition to collaborative contracting is a game changer. This is not only for improved cash flow. Client relationships work better when the contracting window is smaller and both parties are jointly accountable to each other. Continuous improvement and refinement aligned to the roadmap provide the effectiveness and efficiency contract over contract. Joint accountability is not some Kumbaya moment, it is tough and is supported by a neutral advocate.
We help you restructuring your services agreement from traditional combative to collaborative contracting. This removes many delays. We add dispute resolution. Delivery quality issues that get addressed early and quickly don’t roadblock payments. And, qualifying customers do not wait 30-60-90 days for invoices, they are paid within 24 hours.