While you may be a billion dollar enterprise with a dedicated accounts receivable team, or you may be on your own as one of 54 million freelancers, it doesn’t necessarily mean that getting paid on time is easy. According to a study conducted by Censuswide, nearly 81% of businesses have received late payments despite having completed their work within the time agreed upon.
The Real Impact of Late Payments
This lack of getting paid on time and having to wait weeks and sometimes months can cause serious cash-flow problems. This can trickle down to your company making your own payments late, or to stop investing in growth or even taking out loans to cover the gap. There’s a real efficiency cost when a customer doesn’t pay you for the work you have produced.
Then, there is the extra time that goes into trying to get that late payment. The same survey found that it can take a significant number of hours that have been put into emails, messages, and phone calls that costs your company money and degrades the relationship between you and your customer. This time could be better spent producing more for other customers who value your business and respect that you should be paid on time.
A Strategy for Getting Paid
While online platforms and agencies can help to improve the ability to be paid on time - because you have an advocate and the tools - you still want to develop your own independent process to receive timely payments. Everyone wants to get paid on time, so here are some tips on speeding up payments and on what to do if you don’t get paid at all.
- Put everything in writing. This helps to formalize the relationship with your clients, get your payment terms articulated in a clear way that includes due dates and late fees, and have a basis should you need to take your fight for payment further.
- Get a deposit. Not only does that let your client know that payment is an important part of your working relationship, but it also provides more cash flow that can help you manage your own expenses. This also may be helpful to your client’s budget and free up funds to pay you more quickly. The deposit is treated like a credit that you then use to illustrate to your client what you accomplished on the project with that deposit before you get your next payment.
- Determine who handles payment at your clients company. While you typically send invoices to the person you are working with directly, it is good to get to know any of the accounting staff that may be actually processing your invoices should there be issues related to non-payment.
- Invoice promptly. Don’t leave invoicing to the last minute. In fact, make it a priority. For example, send it as soon as you finish your project even attaching it to the final work. A schedule often works best, like invoicing on the 1st and the 15th.
- Use positive or negative reinforcement. Typically, positive reinforcement works more effectively, such as offering them a discount for early payment. However, some people will only ever respond to negative reinforcement so when they see a late fee that is a percentage of the total, you might be able to change their payment behavior to your benefit.
- Invoice often. To help your clients budget and remember that payment is part of the process as well as to maintain a regular cash flow, consider invoicing more frequently. Waiting to bill once a month only puts you in a tough position should your clients be late with their payments. However, if you bill twice a month or weekly, you have a better chance of getting money on a more regular basis. Even if one or two clients are slow at paying, there are others that have been trained to pay more often. There’s also something to be said about a shorter payment period in terms of its effect on the client’s ability to keep payments at the top of their mind more so than once a month.
- Use online invoicing tools. While sending invoices by snail mail are still expected from some companies, most company's agree that they prefer receiving them through email and enjoy the convenience of pressing on a link and paying it immediately so it’s off their plate. For you, that means one of the fastest ways to pay. These online invoices also allow for multiple payment methods as well as recurring invoices so your invoicing gets done while you focus on your business.
- Offer more payment methods. Limiting a client to a paper check is cumbersome and could be impacting how fast you get paid. However, if you give them many more digital payment options such as debit & credit cards or ach/echeck allows them to take care the payment easily and immediately.
- Be the squeaky wheel. Don’t be afraid to follow-up when you haven’t received payment in a timely fashion. It’s best to start with an email reminder to check and see if they received your invoice. If no response comes, it is time to formalize the tone of your correspondence, reminding your client that payment is past due and to contact you. You may also need to start calling, but the benefit of doing everything in writing is that you also have a paper trail should you need to go to court or reach out to a collections agency when payment is now months in arrears.
- Halt production. When worse comes to worse and it’s been way to long since you have sent that invoice, it’s time to let them know you will not tolerate this kind of working arrangement. Stop working on a project and see just how fast they may change their minds about getting you what’s owed. If you have also spoken to them and found that they are having money problems or you hear some excuses, then this is a sign to stop working and go elsewhere. In these cases, it may not make sense to go to court or a collections agency as you most likely will get nothing out of it. Those are the times to just cut bait with that client.
While it is important to ensure you get paid, you also want to examine other ways to keep your cash flow steady which we will cover in forth-coming posts.