We’re all in business to fulfil a need of our customers and to get paid as a result, therein lies a possible problem, payment. There are a couple of different types of slow payers, there are those that will always pay and are super reliable, such as government departments or large corporations who often pay invoices on a net 60 or 90 day payment arrangement. Then there are the bad type of slow payer, those who are unreliable and who you worry may not pay you and often only do, once you have chased them endlessly or threatened legal action.
It’s important to differentiate these two types of slow payers. If you are prepared the handle the first type, you can deal with them, but the second type is just painful to handle and can be a killer to your business. The tips below will help with any type of slow payer but are mainly directed at the slow and unreliable payer.
Have an Ironclad Contract
The basis of your business relationship should be detailed in a contract, having a contract in place helps you ensure on-time payments, and also helps you deal with issues that arise.
Choose Clients Wisely
You can avoid a lot of issues with late payments by choosing your customers carefully. Always do your due diligence on any new client to ensure that they’re a good fit with your business and that you’re a good fit with theirs and take up references.
If you build a relationship with every client they’re going to be less likely to want to ruin that relationship by not paying you on time. Make a point to check in with clients (how’s things call), share industry news, fun stories, news clippings and more. As you build that relationship they’ll appreciate you even more.
Tie Payment to Ownership of the Work
If you put a paragraph in your contract and on your invoice that the work (or products) performed during the billing period transfers’ ownership after full payment received and processed, the client will be more likely to pay faster because they want to be able to use the work.
Stop All Future Work until Payment Is Made
A big key to slow payment issues for the second type of slow payer is to stop all work until payment is made. This can work extremely well if they’re on a deadline of some type and you realize that they need the rest of your work to finish, their contract.
Collect Payment in Advance
In many cases you can avoid the issue of slow payment by simply collecting payment in advance. This can work well with a lot of types of services, especially project-based work that doesn’t include an hourly component. But even hourly work can be billed in advanced and charged against the payment.
Even if you can’t collect full payment upfront, it’s generally possible to collect the vast majority of payment prior to completion of a contract, for example fifty percent due with order, thirty percent on approval of something and the balance within fourteen days of completion.
Send Invoices Fast
Don’t hold on to invoices, instead send them out immediately upon completion of the work, stage payment milestone or the time period involved. If you wait too long to send the invoice, the client might forget about needing to make payment and use that cash elsewhere.
State Payment Terms on the Invoice
As well as having terms in your contract, remind your client of your payment terms by putting them on your invoice under terms of payment. This will help them notice that you’re expecting payment on time and the consequences of not doing so.
Offer a Discount for Fast Payment
I’m not a favor of this one myself however I know a lot of people are. Offer a small discount for fast payment. Offering discounts as low as 3 percent will entice your client to pay you faster in order to qualify for the discount, because everyone likes saving money.
Charge a Late Fee
Be careful about actually charging a late fee to a client who will eventually pay but who is typically slow. You don’t want to risk losing a reliable client even if they are often late at paying their invoices. But, if you have a client you know you will not work with again, go ahead and implement late fees if your contract allows it.
Pick the Phone Up and Make a Call
Don’t be afraid to call clients who’ve not paid their invoice on time. It’s important to assume that it’s a simple mistake that they haven’t paid before you call so that you don’t sound angry or frustrated. You’ll be amazed at how far a phone call can go to clearing up a late payment.
Finally, try to be a couple months ahead when it comes to your business expenses and especially your salary requirements. If you are 60 to 90 days ahead of the curve, you won’t be as pressured to deal with late payers. Dealing with slow payers is part of doing business in many cases, but you can eliminate most issues with late payments by thinking ahead and working with the client to ensure prompt payment.