Get Clients to Pay Invoices Promptly
One of the toughest things you must do as a businessperson is get paid! You work hard for your clients to provide them with a valuable service, and then spend months chasing your money. The truth is, many business to business invoices get put on the back burner, because unlike credit card companies who will immediately report the late payer to a credit agency, the smaller business will usually not do this. If you can set up incentives and protections before you even begin the work, you will save yourself a lot of time and trouble.
Contents
Steps
Setting Up A Contract
- Make your payment policies clear at the time your services are retained. However your business is approved, whether it's by a client meeting, or by you submitting a bid, at some point, your client must agree to your estimated price for the work they want done. If your payment policies are stated clearly on your contract, bid, or whatever document you use to bind the contract, you are ahead of the game.
- Accept all forms of payment and encourage credit card payment. In this way, you have a better chance to be paid in timely fashion even if the client doesn't have the funds at the current moment. Shop for a merchant account provider with the best terms.
- Get a deposit in advance. Unless you have a long-standing relationship with the client, get a deposit in advance, and then plan to collect another portion midway through the job. Usually, this is 30/30/40 - 30% in advance (to bind you, and to enable you to purchase materials), 30% upon completion of some agreed-upon benchmark, such as delivery of comps (rough sketches, if you are an artist, or small printouts if you make signs or do other design type work, etc.), and the balance upon completion. Be sure to define "completion" to mean on the day you deliver the work.
- Offer a discount if they pay within 30 days or whatever arrangements you make in your contract and on your invoice. Alternatively insert a clause with a penalty amount if an invoice is not paid on time.
Collecting Payments
- Start out being friendly but persistent when collecting payments. Don't hesitate to escalate the situation if a customer hasn't paid on time despite your best efforts with the contract. The challenge is to get paid without jeopardizing your future relationship with the customer.
- Accept upfront payments if the customer offers. Many times a client will ask, "Do you need a check now?" and the business owner says, "No, that's okay, we'll get it at the end." Don't do this! If the customer is happy to pay up front - let him!
- Make arrangements for payment before you deliver the final product. Hold back enough so that they will need to pay you before you deliver the finished job. It is not unprofessional for you to do so, though many business owners consider this a "low-rent" practice. It's not low-rent - it does not telegraph to your clients that you cannot afford to await payment. Rather it lets them know that you are a professional accustomed to being paid for your work in a timely manner.
- Just say something like, "Hey, Mr. Jones, I have your job all ready to deliver. Can you have a check ready for me if I swing by around 3 PM?. The balance due is $470.78."
- Follow up every day until you receive your money. This should start the very next day after your payment was due. Obviously, you should try to get paid before this need arises. However, sometimes, you have a lapse in judgment, or you're lulled into a sense of security by a client you've had no problems with in the past. Once your client realizes your payment policies are lax, s/he will opportunistically attempt to exploit it.
- Remember - every minute that you are working to get paid is a minute that (A) you are working a second time for money you've already earned and (B) you are not working on a new job, which still needs to be finished on time.
- Apply your payment policies to every single customer. Don't give friends, friends of friends or family any special treatment. If anything, treat them with even less trust than a stranger - they often attempt to take advantage of your relationship. If the client has not paid you by your due date, call him immediately and ask for payment. If you are put off till the next day, call again the very next morning.
- Contact the credit agencies. Printing a warning on the bottom of your invoices is fine, but if you fail to follow it up, you won't ever be taken seriously. For customers who are consistently late in paying, contact the credit agencies, Experian, TRW, etc., and report late-payers if the payment is more than 30 days late. Call the client first, and let them know that you're terribly sorry to do it, but unless you receive their payment before the 30 day deadline, you will have to report it to the credit agencies, thus damaging their credit. It's a powerful incentive to pay.
Collecting Smarter Not Harder
- Stop sending paper invoices. Postage is expensive and putting hard copies in the mail only slows down the process. Send invoices via email or invest in an automated billing system that will email invoices for you and continue to send reminders to the client until the invoice is paid. The client can also pay online.
- Do what lawyers do and ask for a retainer. This is an amount paid upfront that you draw down as you complete the work. When that amount is used up you ask the client to replenish before you continue on with the work.
- Set up a recurring billing system. Here the client provides a credit card or bank account number and you take what you are owed on the same day each month.
- Hire someone to follow up on your accounts receivable. If you can afford it, this gives you a more professional appearance and makes payment seem more urgent. Even if it's your spouse, who uses another name to make the calls, this way your amiable relationship with the client is not jeopardized by crass calls about money.
- Don't hesitate to report people to a collection agency if you don't get paid. Often, collectors will pay up to 50% of what you're owed, just for the opportunity to try to collect it.
Tips
- If you can show up in person to collect, it always helps. People have a much harder time making excuses face to face.
- Before doing business with anyone, make sure that any needed paperwork is completed. Failing to have contracts or agreements in writing can significantly delay payments and you will have no proof if you have to go to court.
- Have a cash reserve that you can use for refunds when necessary. That way you won't be hesitant about taking payment up front. A cash reserve will also be helpful for improving your cash flow in the rare situation where you don't get paid on time.
Warnings
- Never buy into the idea that being lenient with a deadbeat will entice him to bring you more business. They make it seem like all you have to do is play along and eventually this little favor you're doing them will pay off big time. Nothing could be further from the truth. The longer you let him string you along, the less likely it is that you'll ever see all of your money. 99% of the time, the "flood of new business" never materializes. But even if it did, do you really want more customers like him? Anyone who seeks you out because Joe's buddy told them that you were "cool if they didn't pay it all right away" is not an A-list customer.
- Think of friends and family as being extra difficult from the very start. Quote them your highest prices, not your lowest. There are two ways to view this:
- They should be happy to pay you more, as you will be personally overseeing their project, and giving extra attention and value for the money.
- You will work harder for your friend than an ordinary client. If your friend turns out to be a dream client who is easy to work with and happy with everything, you can always give him a discount at the end - he'll be delighted that the job ended up costing less than he anticipated, and you both win.
Related Articles
- Make an Invoice
- Collect Money From People Who Owe You
- Collect a Court Ordered Judgment
- Invoice a Customer
- Handle an Irate Customer on the Phone
