Dealing with late payments from a client or customer is simply no fun. And when your client is a chronic offender, financial tardiness is more than just annoying. Consistently late payments can severely curb your cash flow and put your whole business at risk.
Good news is your invoice can be a powerful tool of persuasion when it comes to addressing the late-payment plight. These five strategies related to invoicing and more can help keep your cash coming in.
Send your invoices on time. We’ve said it before, and we’ll say it again. Nothing gets you paid faster and more reliably than sending your invoice as soon as it’s due. Whether your payment cycle is weekly, monthly or something else entirely (50% payment upfront with the rest when the project is done? Great!), stick like Velcro to your agreed-upon schedule.
Negotiate terms up front. Speaking of payment schedules, make sure you and your client agree to one during your initial contract negotiations. Put all the terms in writing so there’s no room for misunderstandings about deadlines or late fees.
By the way, some experts say there’s a “sweet spot” regarding how quickly payment is due once a client receives your invoice. “Due upon receipt” (in other words, immediately), may not be realistic. “Net 60” (payment required in two months) can seem awfully far out. On the other hand, “Net 10” or “Net 15” seems like a good compromise for both parties.
Penalize late payments. Billing for overdue payments is kind of like flossing your teeth: not your favorite task, perhaps, but one that helps prevent more costly problems in the future. A standard late fee is 1-2% of the total amount due. Whatever penalty you choose to enforce, make sure it’s steep enough to change your client’s bad behavior.
Keep clients’ credit card on file. If your business has recurring customers, keeping their credit card on file can minimize payment headaches for both of you. Just be sure to get permission in writing to charge the card, and make certain you store their private information safely and in full compliance with PCI standards.
If you’re sending invoices using an online financial management platform, you can set up automated, direct payments from an approved credit card. Another idea: Some customers are willing to grant permission (again, you need to get this in writing) for you to pay yourself by swiping the card on their behalf.
Consider invoice factoring. If you’re really crunched for cash, you might seek out a special type of loan for the amount you’re owed (up to $150K). Known as invoice factoring or invoice financing, such loans are possible if your invoice (or invoices) is due and payable within 90 days and the businesses you work with are reputable and have good credit scores.
The money you borrow through invoice factoring is equivalent to a loan with an annual percentage rate (APR) around 28-60%. Short-term business loans often come in between 40-80% APR. This solution, then, may help get you out of a financial bind. In the long run, however, the high interest rates can work against your bottom line.
When it’s time to get serious …
Some customers are notoriously nonchalant when it comes to paying what they owe no matter how punctual, professional or pretty your invoice. Here’s a quick roadmap for how to track down your precious dollars.
To keep things simple, let’s assume you and your client have agreed payment is due on the 1st and 15th of every month.
Your money is more than two weeks late. Time to send your customer a polite reminder. A good opening line for your communication? You’re just checking in to make sure the client received your invoice! Or consider this approach: since your second payment of the month is about to come due, send that invoice and include the original outstanding amount, too.
Still no dinero? Frustrating, we know. Skip the email missive and pick up the phone to find out how you can expedite the payment process. Emphasize the specific due date – and remind your client about the agreed-upon payment terms. If it’s possible to have this conversation in person, schedule that one-on-one – and ASAP.
Time for some deep breaths. Don’t get furious. Get persistent. A day or two after the 30-day deadline has passed, start calling, emailing or stopping by in person – whatever it takes to get your client’s attention. No matter your mode of communication, however, it’s really important you stay calm and professional. Two other reminders:
Take a moment to send one more reminder, just in case your invoice has been moved to the next month’s “payment due” pile. If there’s no response, you might consider connecting with a collections agency (see no fun, above). Unfortunately – and rarely – radio silence may indicate your client has gone out of business or (gulp) skipped town. In this scenario, it may be time to cut your losses and assess what you can do differently to avoid this trying situation in the future.
Day 0 (back to square one)
The strategies we outlined at the beginning of this post are tried, tested and true tactics for helping you get paid on time, every time. Just as important? These approaches let you focus on delivering on the awesome work that keeps your customers happy and your business afloat.
Before you go
QB Community members, have you had to “retrain” customers so they’re punctual with every payment? Please share your stories – and your strategies for success!
Want to read more tactics and tips for getting paid? Check out these posts.
Yes! :) I used to be super lenient on payment terms with our customers, until I realized that they were starting to take advantage of it and us. :)
BTW, Thank you so much for the amazing tips! :)
This is my current struggle. Often clients have not paid in over 6 months, even with my pretty invoice reminders, emails, and phone calls. Definitely, revamping my engagement letters as well as my payment methods.
This is a big one! I love the idea of sending invoices BEFORE they are due and I love putting clients on AUTOPAY even better! The other aspect of invoicing to explore is why we continue to serve the client when they don't pay. I agree that things happen and it is absolutely acceptable to allow for delays, but we also need to consider that we are doing clients a disservice (and ourselves) by not expecting payment within a reasonable time. If we don't hold the line, they won't hold the line with their customers / clients and then the cash flow crunch becomes a 360 degree problem - not to mention we are teaching what is acceptable and what is not - which creates a whole additional layer of issues. Thoughts?