Solution providers need to understand that they are not in business to just merely build an impressive topline. They are here to earn a healthy bottomline as well. Therefore, it is advisable to undertake projects based on the evaluation of the available capital, rather than relying on credit from other sources

Being in the solutions and services business, one has to face many challenges and hardships. The most intrinsic of these is related to finance, its apt management and utilization. While funding is always a matter of continuous consideration, payment collec­tion is perhaps the most common of all worries that a solution provider has to face.

Jamming of payments is a common problem in this trade. Recovering this money involves employing various tactics and practices. Often it is the partner who invokes greater trouble by not giving much thought towards payment recovery initially, thus incurring heavy losses later on.

It is essential to remember that managing existing wealth, especially pending payments, is more significant than earning more money. It is imperative that before getting into newer projects, partners should make efforts to retrieve money from their debtors.

MINIMIZING RISKS

Be clear about payment terms and conditions before signing a contract with the client Run a check on the credit worthiness of a client Rely on internal fund resources rather than opt for external options Always work out a contingency plan in case the payment is not made on time or at all Give some upfront discounts and make customers pay immediately

Varied payment cycles
Once a deal is fixed between a solution provider and his client, payment terms are agreed upon mutually. Payments are generally made in multiple installments and vary between one month to a quarter and even half-yearly, depending on the nature of the project undertaken.

However, while dealing with a client, one should consider several things. It is sensible to do a background check on the client and check his credit worthiness. Also, the size of the project should be kept in mind before offering credit. The larger the project size, the longer the credit period-is the general norm.

It is also advisable to freeze on the payment terms right at the start. The periodicity of getting the payment, the process to be followed, discounts etc, should all be mentioned clearly to avoid any conflicts later. Usually, when there is no written commitment involved, the chances of discrepancy and extension in making payments creeps in.

Risks involving payment recovery
Each one of us is under constant pressure to get our payments back as soon as possible. At times, if the payment cycle is lengthened and the client is defaulting in paying, the solution provider has no option but to negotiate as per the client's demands. In some very extreme cases, where negotiations fail, partners have to write off the money and find ways to manage the loss incurred.

To avoid such a situation it is important to first understand why the payments are not forthcoming. Sometimes, after a few months of the project implemen­ta­tion, the client
might not be happy with it or would want to discontinue the services for some reason. He may also refuse to pay the agreed amount.

The client might demand an altogether different set of services or solutions over the one provided. And this might have to be built within the amount originally quoted. In such a situation, it is difficult to explain the technical intricacies to the client and the reasons why it cannot be done.

To avoid this, be very precise and clear in what the client wants from you as a solution provider and what you will
be able to offer him. Do not
go overboard and promise something you can't deliver. Build transparency in the entire project, so that the client knows at every step what he is paying for.  

How to minimize hazards?
One of the biggest challenges in technology business is sustainable growth. In an age of reducing profit margins, partners are trying to provide more value-added services to customers for greater profits. It is therefore, critical to chalk out an intelligent fund management procedure in order to get less affected by a disturbing credit cycle, which is synonymous with this trade.

Before worrying about ways to recover payments, it is wiser to be a little cautious in advance and avoid such occurrences. Unfortunately, in this trade people mostly work on external credit sources rather than using in-house funding. This aggravates the problem and throws the entire debtor-creditor balance out of gear.

Before finalizing any project, in particular those involving bigger amounts, it is very important to confirm the internal fund position of the company. One should first evaluate whether it is viable for him to invest a huge amount upfront into the project vis a vis the credit period offered and the payment retrieval's probable extension.

It is always prudent to work with self-affordable credit rather than depending on credit offered by distributors. Similarly one should not allow longer credit periods to clients either. That way it will prevent the payment cycle from getting stuck and lessen the risks of trapped payments.

It is also advisable not to work for those projects in which margins are minimal. Sometimes, even if both the client as well as the business prospects are big, problems might arise in getting the payment on time. The risks are higher if the client is a local and small time player as most of them have fund crunch themselves.

Once the payment is stuck, it's hard to recover. Consequently, it is wiser to have the complete detail of a client's market credibility in advance and
then quote high to avoid problems. At the same time don't go for big margins in these works. Give some upfront discounts and make customers pay immediately. Take maximum advance payments from clients and avoid giving credit extension. 

Be patient
Advance evaluation of the payment cycle always helps, especially for bigger projects. This will optimize the process of recovering blocked payments. Instead of allowing the client to take advantage later, charge at least 25 percent of the total cost in advance and another 25 to 30 percent during the implementation process.

Generally the remainder is paid within a certain credit period, which might vary starting from the project completion time. The client prefers to pay it only after using and testing the applications.

To recover any payments, one needs to chase clients continuously. In most cases, the problem arises with the remaining five or 10 percent payment where the client tries to negotiate with the services or solutions provided to him. It is better to be patient and sort out those issues with the client in order to recover the payment even if it is delayed. Evaluate the reasons and its feasibility. Speak to the client and explain your limitations and then compromise accordingly.

Today, clients are more demanding. They expect highest benefits out of lesser payments. Therefore, one needs to be cautious well in advance.

The main problem of payment recovery that we have to face is from the small clients. In such cases if the payment gets stuck it is extremely difficult to recover it. And for such small amounts it's useless to go for legal proceedings. It is not worth the time, energy and money wasted on it. But when
these small payments get accumulated, it can run into substantial losses.

Since there's no definite way out to solve the problem of recovering pending payments, the issue will continue to bother us. We can only try different ways and follow the steps mentioned above and minimize its likelihood.

The author is Director of Kolkata-based Diamond Infotech

By: Manoj Rathi The author is Director of Kolkata-based Diamond Infotech

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