Running a small business of your own can be exciting and challenging at the same time.
The interesting part is usually the freedom to decide when to work, whom to work with, and for how long. Yet, one of the challenges that abound is in managing your cash flow.
As a business entity -vendor, supplier, freelance, digital, or bricks and mortar- there is no way you are entirely free from the problem of clients who would not clear their invoice as and when due.
Clients who refuse to pay their past-due invoices can cause financial constraints and disruptions in your cash flow.
It is not a good situation to be in as it threatens the very financial freedom and independence you seek by working for yourself.
Your best strategy in dealing with such a situation is to be proactive in selecting the appropriate clients with the correct history. However, no matter how careful you are, the odds are still high that you may encounter such scenarios.
Now comes the ultimate question, how do I get clients to pay past due invoices?
Honestly, there is no clear-cut answer. Clients and situations differ. However, the tips highlighted in this article will be of immense help in handling such cases.
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1. Discuss Payment Terms with Clients
Before you begin a project, you should explicitly discuss payment. This should be contained in a contract or any pre-project arrangement.
In the recent past, most freelancers and small business owners do not take this contract issue seriously. Many freelancers are still guilty of this. This lackluster attitude is partly responsible for the high rates of payment burnouts from clients.
According to Freelancer’s Union publishers of The World’s Longest Invoice, freelancers lose an enormous amount of money each year, and as much as 71% of freelancers struggle to get paid.
A well-negotiated contract with explicit details of terms of payment is the first step in ensuring you get paid for your effort. An invoice without an adequately documented agreement to back it up can be seen as just another piece of paper.
Discussing your payment terms with clients and putting them down in a written agreement puts both of you on the same page regarding your invoice and payment policy.
Each party will have a clear picture of what the contract entails in terms of fees, deadline, and means of payment.
Setting up terms of agreement from the onset helps kick start your relationship on a healthy note. Maintaining a good rapport with clients can help resolve past-due invoice problems or even prevent them entirely.
If for some reason, you arrive at the worst-case scenario of suing your clients due to non-payment, a well-documented agreement will save you and your attorney a lot of stress.
2. Make it Easy for Clients to Pay
Your clients might be busy, or some emergencies may be the cause of the delay. Thus, it would be best if you made the invoicing and payment process as easy as possible.
The easier it is for clients to pay, the better your chances of being paid without any hassle.
Here are some things you can do to make the invoicing and payment process as effortless as possible.
- Emphasize Details of the Work: don’t be like other freelancers who just accept a contract from a client and then wait till the deadline before dropping the final job without any details.
It is best to be in constant communication. When your clients know how much effort you put into your work, you are less likely to have a problem with getting paid.
- Send Your Invoice Immediately After the Job: there should be no delay in invoicing clients upon completing a project.
The invoice should contain details of what the client is paying for, your contact information, and agreed terms of payment. This connects the invoice with the completed project.
- Offer Discounts for Early Payments: you can give your clients some incentives to pay early or clear their past due invoices as soon as possible.
- Be Flexible with Payment Options: payroll systems and preferences of clients are different. Some prefer to pay by check, others by direct deposit, online payment, or use of credit cards. More options, less delay.
- Know Your Client’s Payroll Schedule: you might have sent your invoice on the 15th of the month to a client who operates a monthly payroll system.
This in itself might lead to some confusion and delay in payment. It is advisable to know the right time to send your invoice and stick to a consistent schedule.
3. Follow up on them
Sometimes, your client may forget about your invoice, or the invoice might not reach the right channel. A follow-up will go a long way in sorting out any such issue or answer any question the client might have regarding the invoice sent.
You can send a follow-up email or put a call through to such clients. It will serve as a sort of reminder and may prompt the client to act accordingly.
Keeping in touch after sending your invoice will help you track any potential source of delay and resolve it appropriately.
The delay might be due to technical issues or some acts of negligence on your part. You don’t want to come down hard on your clients for something a simple email or phone call could resolve.
If you are dealing with an agency or a large company, you should follow up with appropriate authorities such as the billing department or the accounting officer.
You have two options for setting up the tone of voice in your follow-up email. The best of these options depends on your current and future relationship with such clients.
- Be Polite to Keep the Relationship: you can decide to play the nice guy depending on the client’s record and the prospects of your future working relationship.
Here, positive reinforcements and appreciative phrases may do the trick. You may receive payments from clients with outstanding fees after sending such a message.
- Be Straightforward and Risk the Relationship: this can be from the onset or after some polite follow-up email.
A strongly worded correspondence expressing your disappointment may save you further stress in collecting what you are owed.
It may have some ripple effect on your working relationship in the future. Hence, you have to be careful and strategic when sending such a message.
4. Charge Upfront Before the Task
If you’re experiencing a lot of past-due invoices not being cleared up, then you should consider charging upfront. Getting paid in advance is not only an excellent motivation to work with a client, but it can also be of immense benefit to your cash flow.
You don’t have to charge the total price upfront; you can request a 20% – 50% upfront payment depending on the nature of the project and the client involved.
A client agreeing to this is a good indication that you won’t have to pursue them to get paid after completing a project. This can also help set the stage for other payments.
Another variation of this is to ask clients to pay by milestones. This strategy is especially important for long-term projects. The bill might pile up and become difficult for your client to clear up at a go.
Payment can be divided into three or more parts, a 30% payment in advance, another 30% after reaching a milestone, and the rest upon completion of the project.
Breaking a long project up into checkpoints and milestones is beneficial for both you and your clients.
You get paid on time and prevent any trouble of late payment. Your clients also get to manage their finances appropriately and avoid a huge debt.
For clients with a history of delayed payment, you might want to take a more drastic approach. You can hold on to the final work until payment is made.
This might not be the best course of action, but it can be practical for clients who don’t pay on time.
5. Charge a Late Fee
When clients know that not clearing past due invoices comes with additional costs, they might be more prompt in doing so.
The additional fee can be a percentage of the total invoice amount with specific time frames—for example, a 2% increase in charges for every 15 days of non-payment.
This should be clearly explained in your contract as part of your payment terms. It will prevent any surprises when clients see this clause as part of your invoice.
The penalty fees may motivate the client to quickly pay what is owed or reach an agreement on when to pay up. The extra fee can also help you cover some financial costs incurred due to the late payment.
Enforcement is critical for late fees to be efficient in getting your clients to pay past due invoices.
Except if you are running a charity organization or in business for humanitarian purposes, there is no reason for not sticking to your guns when it comes to being adequately compensated for your work.
6. Involve a Third Party/ Take Legal Actions
If you are still having trouble with due payment after going through the regular route, then it’s time to take the bull by the horn and outsource the payment collection.
Although this escalates the situation, it might be your final option in getting back what you are owed.
A downside to taking any of these steps is that you won’t claim all that you are owed as some part will be used for paying for services hired. Yet, half bread is better than none. It is still a good option, especially if you are owed a large sum.
Here are some of the available options depending on the specific situations and jurisdictions.
- Hire a Collection Agency: collection agencies specialize in collecting payment from debtors for a service fee.
The fee charged is usually a percentage of the total amount owed. These agencies are experts at what they do, and they may be your best bet in dealing with demanding clients.
- Use a Business Mediation Service: the client might want to pay but has a cash flow problem of their own. A trained business mediator can help both parties reach a more favorable agreement with different terms.
If you met the client online via a freelance platform, you could report to the customer service section.
- Approach a Small Claims Court: small claim courts help resolve issues involving small amounts of money, usually not more than $10,000. Every state has one, and you don’t need an attorney to approach one. You can represent yourself.
- Hire an Attorney: for large amounts of money more than what a small claims court can resolve, you should consider hiring an attorney and approaching a superior court. This takes more time and will require an expert attorney to represent you.
- Go to Arbitration: more like a small claims court but less formal, an arbitration also offers a less expensive and swift way of collecting payment from clients. An arbitration is presided over by an arbitrator rather than a judge, but the verdict can be enforced similarly.
Conclusion
As a freelancer, your priority should be to easily get clients and gigs at your doorstep and get paid for your efforts timely and appropriately.
Running after clients to pay past or outstanding dues can be stressful, inconvenient, and time-wasting. Nevertheless, it is still bound to happen and cannot be eliminated.
The best approach is the preventive ones. Scrutiny and proactive policies can go a long way in significantly reducing your number of clients with past-due invoices.
Discuss payment terms with clients, sign a contract with clear payment terms, make it easy for clients to pay, send a prompt invoice, follow-up appropriately, charge upfront or by milestones, charge a late fee, and if all these fails, bring in outside help to do the job.
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