Consulting 102b

Post by
Scott Francis

Great post from a fellow BPM aficionado, Patrick Lujan on the subject of consulting contracts, learned in the school of hard knocks.? He has some good advice for consultants, but me being me I can't help but put my own spin on a few of them.

2. Beware that clause (it?s almost always there) that says ?you don?t get paid ?til we get paid.? That clause is [@#$!%]. Short of a direct contract IF you submit an approved timesheet signed by the client as documented in the agreement along with your invoice then that?s it, period. There is a relationship between the broker entity and the end-client, and the broker and your entity (not you, the distinction?s important), never the twain shall meet. Period.

This is a good point, but one caveat.? When you negotiate for better payment terms of any kind, expect there to be an impact on rates, and vice versa.? For example, you might accept some payment terms risk in exchange for a higher rate, or you might take a lower rate in exchange for more favorable payment terms (many companies ask for a discount if they pay faster than the contract requires, for example).? In other cases, the intermediary firm may be too small to take all of the payment risk - and then you have a decision to make, or a compromise to reach.? Walk away from a certain amount of risk, or not.? If you have other paying opportunities with better payment terms this is a pretty easy decision.

Patrick advises being very careful about A/R and recovery terms:

A/R is a very slippery slope and things can go sideways quick. That is, ?Net 30? means ?Net 30.? Do not let partners?, vendors? or brokers? A/P folks slide on this. That first payment is very, very important and a key indicator of how the business side of this will run.

We've been fortunate to avoid the worst A/R nightmares he mentions.? At BP3 we de-risk this by carrying excess operating capital and credit.? I agree completely that the first payment is a pretty good indicator of how long you should expect payment to take from that customer/partner.? You can fight for net-30 all you want, but you have to be prepared for an extra 15 days if you want your business to survive first contact with a slow-payer.

Patrick also advises for semi-monthly, net-15 billing terms.? This helps a lot with cashflow, but we've opted for monthly and net-30 at BP3 because of the negotiation friction it avoids.? We'd rather spend less time negotiating and more time working with our clients and partners.

Another thing I'd advise for individual consultants (or contractors) - get a green Amex card or the like. The kind that charges no interest, but where you lose your points if you pay late.? It is perfect for getting a start on covering travel expenses when you're not sure about your own reimbursement rate, and you won't get hit by a load of compounding interest at the same time.

Patrick gives some good advice from the trenches, just know that there's more than one way to get from here to there, depending on your priorities and tolerance for financial risk or pain.



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