Winning more work should be good news. More customers, more revenue and a healthy pipeline are generally signs that things are moving in the right direction.
But growth has a slightly inconvenient way of costing money before it makes money.
Imagine winning a £100,000 project. You might need contractors, licences, travel or additional delivery capacity almost immediately. But perhaps you can’t invoice until you hit the first milestone. Then your client has 60-day payment terms.
Nothing’s gone ‘wrong’ here. They haven’t paid late. You might have willingly agreed to every part of the deal. But you’re still financing the gap. Which raises a more interesting question:
What happens when you keep winning?
Where great deals create poor outcomes
One project might be perfectly manageable. But imagine ten starting at roughly the same time.
Look at each individually and they might all be good deals. The margins work. Delivery is comfortable with what’s been promised. Payment terms are reasonable.
But those ten individually sensible decisions can create a fairly unpleasant cash requirement when they all hit at once.
I’ve seen businesses growing and winning plenty of work while simultaneously coming under serious cash pressure. Their own invoices start getting deferred, everyone starts chasing money and there’s suddenly a nervous eye on every penny leaving the bank.
The problem isn’t necessarily the quality of the revenue. It’s that we tend to assess opportunities individually, while the financial consequences of winning them accumulate across the business.
Ten good decisions can still add up to a fairly uncomfortable outcome.
Closed-won isn’t remotely the finish line
Sales teams are generally incentivised to sell. So quite reasonably, a lot of attention goes into getting an opportunity over the line.
But closed-won can become a slightly misleading finish line. You’ve still got to deliver the thing, invoice for it and actually get paid.
Some of the best commercial processes I’ve seen introduce two remarkably simple handshakes as a deal progresses.
- Delivery needs to be comfortable that it can deliver what’s been promised.
- Finance needs to be comfortable with the commercial terms being agreed.
A 60 or even 90-day payment term might be perfectly reasonable if the margin is good, you’ve got the cash to support it, the relationship is valuable and you understand the exposure you’re taking.
The important bit is that it’s a conscious commercial decision made with an understanding of the cumulative position.
Sales can be making perfectly rational decisions. Delivery can be making perfectly rational decisions. Finance can be perfectly comfortable with each deal. The problems appear when nobody is looking at all of those decisions in the round.
When that happens, getting something over the line at all costs can be a surprisingly expensive way of growing.
Are you turning your relationship managers into bailiffs?
There’s an important distinction between financing a customer by agreement and financing them because they haven’t paid you.
Agreeing to 60-day terms is a commercial decision. Chasing a 30-day invoice on day 60 is something else entirely.
Research commissioned by the Department for Business and Trade and the Office of the Small Business Commissioner found that businesses affected by late payment spend an average of 86 hours a year chasing it.
But there’s another cost that’s harder to quantify. I’ve seen late payment turn relationship managers into bailiffs.
The people who should be talking to customers about what they want to achieve next, spotting opportunities, solving problems and building the relationship instead end up sending another email asking for an update on an invoice from three months ago.
At some point, that starts changing the nature of the relationship. And our systems don’t always help.
The CRM knows we won the opportunity. The project management system knows we started delivering it. The finance system knows we sent an invoice. Individually, each system is doing its job. Yet collectively, they can leave you without a particularly useful view of the commercial position.
Commercial visibility shouldn’t stop at closed-won.
Closed won > Delivery started > Invoice submitted > Cash received.
What happens if you win it all?
Rather than starting with everything you’re already owed, look forward. Take the opportunities in the next 90 days that you genuinely think you’re likely to win.
For each one, ask:
- When does the project start?
- When do the costs of delivering it begin?
- When can you send the first invoice?
- What payment terms are you likely to agree?
- When does the cash realistically arrive?
Then look at them together.
Five opportunities can look perfectly sensible in isolation but collectively create a significant cash requirement, particularly if they all start in the same period.
Your sales forecast tells you what you expect to win. It’s well worth understanding the cash consequences of winning it too.
Finding that out before you win them gives you options and the breathing space to consider them. Or you might look at the whole thing and decide you’re perfectly comfortable with it.
The point isn’t to win less. It’s to understand what winning more will require.
Full episode transcript
Dave Heywood, MD & Growth Partner at OX7 Partners (00:00)
You can be growing, winning new customers, signing new work, and watching your pipeline move in exactly the right direction. and yet you can still find yourself wondering whether there’s enough cash in the bank to pay the next round of invoices.
This is Scale, an OX7 Partners podcast, and I’m Dave Heywood.
this week I’m gonna spend a little bit of time on how growing businesses can end up financing their customers, why winning more work can actually make the problems worse, and what you can do about it before everyone gets sent out to chase invoices.
So you’ll know by now I like examples with nice round figures. So let’s just imagine that you’ve won a lovely hundred grand piece of work. Not bad if you can get it right. Everyone’s happy, sales have hit their targets, the CRM is flashing closed Won
And now you need to deliver it. Perhaps you need to bring in a contractor. Maybe you’ve got some travel costs, you’ve got salaries to pay regardless. And perhaps there’s some other licenses or other supplies involved. So the costs start racking up pretty much immediately.
But perhaps you don’t invoice the client until you’ve hit that first milestone. And when you do, they could be on 60-day payment terms. And all of a sudden, there’s quite a big gap here between celebrating that hundred grand worth of revenue and actually seeing the money in the bank. Now, nothing’s necessarily gone wrong here. Your client hasn’t paid late. Nobody’s broken the terms of the agreement.
and you might have decided that a sixty day payment term was perfectly reasonable for a client that you really wanted to work with and win But regardless, you are financing that gap. And I don’t think we always think about it that way.
the really interesting bit for me isn’t necessarily what happens with that one customer, but it’s what happens when we win another one, and another one, and another one, and so on. And I’ve seen firsthand plenty of businesses growing and winning plenty of work while simultaneously coming under some quite present and serious cash pressures.
Suddenly invoices of their own start going deferred. everyone’s chasing money around the place and there’s essentially a real nervous eye as to every pound and penny that’s going out of the bank.
it feels very contradictory here, imagine ten projects all starting around that same time. Each one viewed individually might be a perfectly good deal over time.
but no one’s necessarily read across what happens when all ten of those perfectly sensible decisions start to hit the bank account at once.
And at that point it starts to become more than just a finance problem.
it becomes a problem of us not understanding the cumulative risk that we’re taking on as we grow.
But on the flip side, some of the best commercial processes I’ve seen have been well remarkably simple here. So as a deal progresses, there’s effectively two additional handshakes before everyone gets too excited Your client delivery team need to be able to say, Yes, we can definitely do what’s been promised.
and finance need to be able to say, yes, we’re comfortable with the commercial terms we’ve agreed. Now that sounds incredibly obvious.
But doesn’t always happen because sales teams are generally incentivised to sell, right? The pressure is to get those opportunities over the line. And if we’re not careful, that closed Won bucket ends up becoming the finish line. Except it isn’t. Signing that contract is one point in a much, much longer tail commercial relationship.
we’ve still got to deliver the thing, invoice for it, and actually get paid. That’s the finish line.
Now, what I’m not gonna start suggesting here is that we should start demanding full payments up front. That’s certainly not realistic and commercially not great advice either. Sometimes longer payment terms are just the price of doing business. And
we can be perfectly comfortable with a sixty or even ninety day payment term if the margin’s good, we’ve got plenty of cash that relationship is good and valuable and we understand the exposure that we’re taking fine.
The important bit is that we actually clearly and consciously make that decision.
At the end of the day, getting something over the line at all costs can be quite an expensive way of growing.
And we also need to really clearly distinguish here between long payment terms and late payment.
So if I’ve agreed with you to pay you in sixty days and I pay you on day sixty, I haven’t done anything wrong. I’ve agreed to those terms. That’s all cool.
But if I agreed thirty days with you and you’re still trying to get hold of the money off me on day sixty, we’ve got a bit of a different problem here.
And the amount of time businesses spend dealing with that is pretty spectacular.
there was actually some research commissioned by the Department for Business and Trade and the Office of the Small Business Commissioner, and they found that businesses affected by late payments spent an average of eighty-six hours a year chasing it.
And regardless of the time spent, what actually also ends up happening is we end up turning relationship managers essentially into bailiffs. The people who should be talking to clients about what they’re really trying to achieve next, spotting those opportunities, solving problems and building that relationship, are instead sending another email or getting another slightly awkward call asking whether
They got an update on that invoice from three months ago.
which ultimately ends up changing the nature of a relationship.
And there’s a slight systems angle to this as well.
We’ve got a CRM that knows we won an opportunity. We’ve got a project management system that knows we started delivering it. And we’ve also got a finance system knowing that we sent an invoice. And sometimes those three key pillars of information don’t always speak to each other.
which is why we end up in those situations where finance crawl out of the woodwork and suddenly announce everyone needs to go and chase cash this quarter. No, I really don’t think we need more dashboards and reports here.
And I’d also take the view of extending the sales viewpoint within the CRM. extend that commercial visibility beyond closed won to include things like delivery started, invoice submitted, invoice paid.
it helps really reflect and reinforce that collecting cash is quite an important part of this whole selling things to people.
and so we come to what we can actually start doing here. Let’s not start this by looking backwards at every single penny that you’re already owed. your finance team should be doing that anyway. But instead, have a look at the next 90 days of your pipeline.
Take those which you genuinely think you’re likely to win and ask what happens if we win all of them? When does each project start? When do the costs start racking up to deliver those?
When can we send our first invoice and what payment terms are we expecting to agree? Therefore, when does that cash realistically arrive? And then look at them all together.
because the problem here that we’ve got to, is that as five opportunities can look perfectly sensible in isolation, but collectively can give you quite an unpleasant cash requirement, particularly if they all start in the same month.
Find it out now and you’ve got the headspace to explore some options. changing the billing schedule, negotiating the terms, asking for something up front, moving a start date, or even rethinking how you might resource that.
I hope you found that useful. This is Scale, an OX7 Partners podcast. I’m Dave Heywood and I’ll see you next time.
