Like most small business owners, you pay your bills on time (or even early) and count on others to follow your Golden Rule as well. Doing so makes many of us feel good as it demonstrates our integrity. So, in good economic times, isn’t it downright offensive when your

• Big customers don’t pay you for 60 days or more
• Credit-unworthy prospects approach you after stiffing your competitors
• Clients make you subsidize their growth by discounting your services

Being owed money and not getting paid is always disturbing and disrespectful to you and your company. You counted on the cash and undoubtedly had it earmarked for some critical purpose.

But in bad economic times, broken promises of timely payments are more than a nuisance. Many good businesses are struggling with bad cash flow. With their credit lines tightening, and their customers not paying them, how do you respond when your client says he or she can’t pay you on time, in full, or at all? How do you choose which customers to keep, which to ditch and how can you do so to your advantage?

Here are ten rules for bending your credit policies when your customers want more than you bargained for.

1. Make concessions based on joint accountability.
   If they are asking you to compromise, demand a similar giveback in return. For example if a business owner is asking for relief, have they first taken a pay cut before they are asking you to do the same?
2. Don’t change your terms because your client changes their mind.
   If he or she suddenly makes the excuse your products or service no longer solve their pain or create new profits they are distancing themselves from keeping their promises. Stand your ground and take legal action.
3. Watch what your customers do and not what they say.
   If they aren’t cutting back everywhere or still taking vacations, don’t subsidize their bad judgment or unwillingness to sacrifice.
4. Credit their Credible Behavior.
   If they have kept previous promises you should trust the same individuals to do the same. Beware of the same bait you have taken in the past. Learn only to get screwed in new and different ways.
5. Don’t assume any accountability for their dysfunctional behavior.
   Bad times expose impostors. Learn all the reasons why your customer is in hot water. The chances they will cut the same corners or shirk their responsibility again are much greater in bad times.
6. Prepare the “MIL’s” that you Must, Intend and Like to get through every negotiation and establish your BATNA (Best Alternative To A Negotiated Agreement) where it’s better to walk away than settle. .
   The book Getting To Yes by Fischer and Ury is a must-read for preparing for any negotiation.
7. Stand firmer on receivables in a transactional business than you would a relationship business.
   Lawyers and accountants usually let their receivables slide because they know they can bill their clients for years to come. If you have no chance to make it up in the future do not compromise in the short run.
8. Negotiate as a peer, never as a subordinate.
   When a customer informs you they are breaking a promise, its no time for them to be heavy handed with you. They made an agreement and cannot live up to it. If they are telling you and not asking you for relief they think they can squeeze you; so squeeze back.
9. Keep reminding them of their commitment.
   Most creditors are good people who want to pay up. Follow up persistently and incessantly. The squeaky wheel gets the attention and paid first.
10. Getting paid equals respect.
    If you are known as a tough cookie, you are more likely to get paid. If you are known as a pushover, well…

Tough times will bring the best and the worst out of people. While past behavior is usually a good indicator of their next actions, desperate people in denial will do anything. Keeping close to your customers, doing reference checks on prospects (just as they do them on you) and providing high value based on your Best and Highest Use is the best defense. Always being this tough has a final benefit. It allows you to subsidize creditors you believe will survive and who will remember you for reaching out to them in their time of need!

Recently, a group of very successful partners of law, accounting, investment, and M&A firms met me for lunch and explained why their partnerships worked so well. I was most taken with how their success in partnerships contrasted with the partnership pain suffered by so many small businesses. Why do partnerships work so well with professional services firms and are so challenging for the rest of small business? Whether it is several individuals, a venture capital, private equity firm or an angel investor, small business partnerships just seem to struggle more and certainly make up a smaller proportion of successful entrepreneurships than do lawyers, CPAs or financial money managers.

Here are some Professional Services Lessons and Small Business Implications that I took away from the discussion:

Lesson I: Partners with the same professional degrees and training form tight, loyal and like-minded groups.
Implication: Small business partnerships are founded by experts with unique and complimentary skills. Don’t expect different owners to think or act similarly. It will be harder and take longer to achieve the same esprit d’corps among small business partnerships.

Lesson II: The real definition of any Partner is to be a Rainmaker, who can land and grow clients, regardless of whether they have managerial duties in the firm.
Implication: Small businesses require strong operations, finance and sales/marketing in equal measures, so different Partners proficient in different functions are needed.

Lesson III: Successful partnerships do not pay compensation to equity partners based solely on their shares but on their performance and contributions to their firm’s profits.
Implication: Regardless of ownership percentages, small business Partnerships would be well-served to set up compensation plans based on their partner’s job descriptions and performance

Lesson IV: Professional services firms make new partners, regardless of their experience or financial buy-in, work in their firm for a couple of years before bestowing formal partnership titles. This ensures they “fit” with the Partners regardless of how they “look on paper”
Implication: Small businesses would be well-served to similarly “date before marrying” instead of rushing into the arms of new partners, VC’s or private equity firms.

Lesson V: Professional services firms recruit talented individuals by offering partnerships, especially to those with books of business that can produce immediate revenues for the firm. Partnerships also provide the firms with the ability to institute and enforce non-competes’ on Rainmakers, protecting the firm’s long-term cash flow and revenue streams.
Implication: Small business partnerships are usually created when partners bring different resources to the table including technology/inventions, operating ability, money and sales/marketing. As a result of these divergent contributions, it is not as easy to protect the firm from the power or departure of any one Partner.

Lesson VI: Partners in professional services firms build long-term client relationships which are leveraged through having less experienced/expensive professionals perform most of the actual “work.” Having the right amount of these professionals is critical to the Partnerships’ profitability.
Implication: Despite the personal relationships small business Partners build with their customers, much of the actual delivery of their firm’s value cannot be done by the partner. Consequently, maintaining the same level of trusting relationships is difficult. So is the actual delivery of consistent “work” in the form of products, especially through distributors or inexperienced professionals.

Lesson VII: The recurring nature of relationship sales allows Partners in professional services firms to wield extraordinary marketplace power by closely managing their clients.
Implication: The transient nature of most buyers and customers makes building relationships much more difficult, especially since sales are usually more transactional than they are relationship-driven. Few Partners in small business know their customers as well as their counterparts in professional services do, despite spending more time and money on formal sales and marketing.

Partnerships in professional services firms have been around for centuries and laws and business practices ensure many of these will continue for decades and centuries to come. The goal of the small business Partnership should be to learn and apply the characteristics that can work in their businesses and not try to imitate what cannot be applied to their businesses.