The other day a friend asked me about starting a business – he’d been laid off and was thinking about branching out on his own. Specifically, he wanted to know about cash flow and how long it takes to get paid – he had some money to get himself going but would need money from clients arriving in around 6 months. Did I think that was feasible?

It sounds easy but the reality is that getting paid for work you do itself takes work. I looked at our situation and the days accounts payable (debtor days in the UK) for clients that we invoice after we’ve done the work is about 50. Meaning that it takes about 50 days on average from when we invoice our clients to when we get the check.

But we often do work at the beginning of the month and only bill for it at the end, so that could add another 30 days, but let’s say an average of 15. And then there are large projects that might run for a few months. Factor all this in and it goes to about 100 days – that’s over three months of waiting until you get paid for the work you’ve done.

And all this happens once you actually have work. My friend had contacts and thought he might be able to start work in about a month or two and we reckoned that if he could bill monthly for his work he should be fine. He’s still deciding what to do.

I should say that most of our clients pay promptly and are great, and a good number even pay in advance, which helps enormously. Still, over the years we’ve got a few scars. Back in about 2000 IBM stopped paying us for over 12 months as they upgraded their payments system (that was when we were starting out and we got through that with a loan). A couple of years ago we wrote the business plan for new beverage – Fyxx Water – that got funding and launched in the US, although they didn’t pay our invoice (they stopped answering our emails and calls and we wrote it off). And recently Nokia had difficulties paying us as they moved their accounts payable to somewhere in Eastern Europe (we eventually got it, about 6 months late and in the meanwhile currency movements had erased about 20% of its $ value).

But sometimes you get lucky. Just over a year ago I got an email from Lehman Brothers that wanted help with some aspects of their research. After a few conference calls I visited them at their London offices in late August. We’d signed an NDA, reviewed rates and we were headed for a trial when the proverbial hit the fan. The world’s financial system shook, trillions of dollars of value was lost and we entered a brutal global recession. And me, I felt like we’d missed a bullet.