How to Get Late Paying Clients to Pay Faster
Cash flow issues from slow paying clients can be crippling for small businesses. In fact, according to a National Federation of Independent Business survey, approximately 64 percent of small businesses reported they had clients who didn’t pay invoices for at least 60 days. That’s just not frustrating and potentially crippling, the longer it takes a client to pay an invoice, the less likely that invoice will ever get paid.
So, what’s a business owner to do to entice those late paying clients to pay faster? You can start by crafting better contracts and payment terms, going paperless, and always following up on late payments.
Craft better contracts and payment options
Prior to starting any work for a client you first want to both agree on a contract and payment terms for the project. Your contract should cover topics like:
The scope of the project and its deadline
Pricing: Do you charge per hour or by project?
Payment terms, such as when and how you’re going to get paid and any other provisions like advance payments
Single point of contact—this limits your communication to only one individual to avoid miscommunication
Kill fee in case the project is terminated by the client: This fee is up to you and can range from anywhere from 25 percent to 50 percent of the project. It ensures that you’re compensated for the work you’ve already done.
Revisions: How will you be compensated for any revisions, alterations, or rewrites that the client requests? Most freelancers allow for around two free revisions.
Copyrights: Depending on your work this will vary, but to protect yourself only handover copyrighted material once you’ve received the full payment.
By agreeing to these terms in advance, you’re preventing any confusion as you work on the project since both parties on the same page. It also ensures that both parties are protected from being each other. Additionally, it will speed up the payment process since there shouldn’t be any questions or concerns involving the invoice.
You can also encourage your clients to make payments more quickly by:
Shorten your payment terms from 30 days to under 14 days.
Choose your words wisely. Don’t use phrases like “net 14.” Instead use “payment due within 14 days.”
Offering discounts and charge overdue fees: If a client pays before the due date, offer a 2 percent discount off the final amount. If the payment is late start charging the client a late payment fee. Even a 2 percent interest fee should grab their attention.
Requiring down payments: This is up to you, but it’s normal to require a 50 percent down payment before you start work.
Accept multiple forms of payments: Don’t limit yourself to only accepting cash, checks, or even PayPal. Offer a variety of payment options like credit cards, eChecks, and even bitcoin so that the client can pay you via their preferred method.
Ultimately when composing a contract and establishing your payment terms, keep it simple so that the client can easily understand how and when you expect to be paid for the work that they asked of you.
We’re rapidly moving towards a digital, paperless economy. That means that you should be embracing online invoicing and payment platforms like Due, QuickBooks, Freshbooks, and PayPal. Not only does this allows you to electronically send your clients invoices, it allows them to pay you instantly through a variety of global payment methods from credit cards to cryptocurrencies.
Most online invoicing software also come with features like sending automated payment reminders and the ability to set-up recurring payments. These platforms also come equipped with mobile e-invoicing so that you can send, review, and accept payments whenever and wherever you want.
Follow up on late payments
Following up on past due invoices is probably everyone’s least favorite part of the invoicing cycle. However, there are going to be times when it’s necessary because some clients need a nudge or they may have just forgotten all about your invoice. That’s when platforms that automate this process for can make things a little less awkward.
But, what if the client still hasn’t paid the invoice?
Resend the invoice with a friendly email reminder that the invoice is past due. As an added bonus, include the late fee in the final amount.
If the client hasn’t responded to the email reminder it’s perfectly acceptable to call the client to find out what the hold-up is.
In the worst case scenario, and your client has continued to dodge your emails and phone calls consider taking legal action by asking your attorney to compose a letter or straight-up taking them to small claims court. If you have a signed contract, you shouldn’t have any problems with the court ruling in your favor.
If all else fails, consider hiring a collection agency to chase the payment for you. Another option is invoice factoring where a company purchases the unpaid invoice from you. Of course, they take a cut, but if you need to improve your cash flow and don’t want to chase down late-paying clients it’s an appealing option.
The bottom line
Invoicing is essential if you want to keep cash flowing into your business. That’s why you need to encourage clients to pay their invoices on-time by establishing clear payments terms and conditions, accepting multiple forms of payments, using invoicing software, and not being passive when an invoice is past due.
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