Tell a normal dip apart from a trend that needs action.
Mei is a freelancer whose holding account balance went down every quarter for a whole year. When late payments pull a balance down like that, most freelancers start to worry about whether the business is failing or whether it has simply been a slow month.
People tend to respond by ignoring the worry or by panicking, and both leave the question unanswered. The holding account itself can tell you, as long as you read it the right way.
Irregular income means some months will be weak, and one weak month on its own is normal. The base-pay method builds in a buffer for exactly this. Common reasons for a weak month include a client paying late, a project sliding into the following month, or a quiet season you knew was coming. When the holding account drops for reasons like these and then comes back up, you are looking at a dip.
A trend is when the holding account goes down for two quarters in a row. It means something in the business has changed, and leaving it to fix itself can let a problem you could have handled grow into a crisis.
You can only compare if you have numbers, so write down the holding account balance at the end of every month or every quarter. When one quarter shows a fall, check it against the same quarter a year earlier before you treat it as a problem, since the fall may be seasonal. Plotted as month-end balances, a dip forms a V, while a trend steps down like a staircase.
At the end of March, Mei's holding account stood at S$14,200. By the end of June it was S$13,100, down S$1,100 (14,200 - 13,100). A single falling quarter can be seasonal, so Mei checked the same quarter from the previous year. At the end of September the balance was S$11,600, a further drop of S$1,500 (13,100 - 11,600). With two falls one after the other, Mei now had a trend. Mei's buffer target was S$13,800, and the account had sat under it since June.
Before choosing a fix, Mei worked out the cause. The income figures in the quarterly checklist showed Mei had invoiced roughly as much as the year before. The overdue invoice total had gone from S$1,200 at the end of March to S$4,800 at the end of September. Mei was doing as much work as before and getting paid more slowly, because two agency clients had switched to longer payment cycles without mentioning it.
Falling balances usually come from one of four common causes, and each has its own fix. Your quarterly checklist income figures and your overdue invoice total are what you use to tell which one you are dealing with.
Lower volume: fewer clients or fewer jobs. Bring in more work with more outreach, referrals from past clients, or a new service. "Prospecting: build a pipeline that does not run dry" covers the sales side. Lower prices: the same work for less money, such as discounts or a retainer set below your usual rate. Work from the rate sheet in lesson 7.4. Slower payment: you earn the same, but the money reaches you later. Apply the payment terms and chasing schedule in lesson 7.3. Higher costs: more money leaving the business. Go through your business costs and pot transfers and look for anything that has crept up.
Slower payment happens often and is easy to overlook, because your sales seem fine, new work keeps arriving, and the unpaid invoices will probably be settled at some point. Until that money lands, it can't go towards base pay, MediSave or rent.
For that reason, keep an eye on the overdue total next to the balance. You have a cash problem when the overdue total climbs quarter after quarter even though sales look healthy. Chasing and better payment terms fix it. Taking on extra work from clients who already pay late can make a cash problem worse.
If you have found the cause and started the fix, and the balance keeps falling, lower your base pay. Do it early and keep the cut small, S$100 or S$200 a month for example. A small cut made early slows the decline and gives the fix time to work. Leaving it until the account is close to empty means a big cut all at once, usually at an awkward moment, or it pushes you towards borrowing. Before you sign for any loan to cover a gap, read lesson 3.2 of How money works, which explains why a flat rate loan's effective interest rate is higher than the advertised rate: the same rate is applied to the original loan amount for the whole loan period. However small the cut, make sure the reduced base pay still pays for your essential spending.
Mei's cut came in October: base pay went from S$2,300 to S$2,200, and with essential spending at S$2,200 it was still covered. Mei rang both agency clients, put new work with them on milestone payments, and carried on recording the overdue total beside the balance. In December the balance was S$10,300, down S$1,300 (11,600 - 10,300), which confirmed the trend. Mei planned to restore base pay after the holding account had stayed above S$13,800 for a full quarter.
The same rule works for you: put base pay back up once your holding account has spent a full quarter above your buffer target.
Your own chart needs only twelve numbers, one for each month-end. Find them in your bank statements, plot them in order, and look at the shape before you look at the figures. A V means a dip. A staircase going down means a trend, so check it against the four causes above.
Chart your holding account balance at the end of each month this year, then write down what the trend shows.
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