It’s one of the toughest parts of running a business – getting clients to pay their invoices on time. There are fewer things more frustrating than doing a job for a client, who until that point has been nothing but friendly and accommodating, only to find they are “freaking” slow at paying your invoice. While there can be good reasons – there are times when cash flow is impacted by some factor outside their control – some clients are just bad payers. So, what can you do about them?
Some countries have laws in place to give you as a business owner some support, the USA is not one of these regions, and payment terms there remain a mere contractual issue and are not part of a harmonized framework.
In Europe a mid 2018 law is put in place that will maximize the payment terms between businesses to 60 days and several years ago the max payment terms for government and small business owners was set on 30 days, after this interest rate applies. If you really want your invoice paid regardless of payment terms, think about factoring, sell your AR to a funding source with a discount.
Before starting a job or taking on a new client, ask about how they process payments and your invoicing terms and do a credit check with a minimum of three of their other vendors, call them and investigate what they are like as a customer. Ensure that the due date is clearly marked on your invoice with a clause that interest and legal charges will be claimed if not paid promptly and don’t hesitate to send a reminder or call. If this is not your strong skill, think of outsourcing your AR to a party that can.
It can be worth discussing Pre payment plan so that you can pay your own vendors (within their payment terms of course). Ask for a deposit before starting the work, and the remainder for payment when delivered.
Another advantage of this approach is that if the project is delayed, your client pulls out or there’s some unforeseen situation then you won’t have the hassle collecting advance payments or costs.
Follow up late payers
And ofcourse, sometimes, people make mistakes and invoices are missed or lost. If a payment is overdue, follow up with an email or phone call.
If you use a cloud-based accounts system to send invoices automatically, you may find your invoices land in the junk folder at your clients’ end depending on how their email gateways scan and categorize spam, send a reminder and call to follow up to check they received your reminder. You will see, it is not that hard and your customer will not be disturbed by your call.
Be prepared to escalate
And then, there are times when a client is simply not paying. If the amount is small, contact a debt agency, file a claim with small claims court, plan visits etc… do what you have to do to get paid so that you can hold up your side of the deal with your vendors. Change into respectable payment term behavior start with one and if we all promise to hold our part of the deal, you yourself will find your terms being respected also.
What other tips do you have? Or maybe looking into a harmonized framework with legal boundaries is not a bad idea after all.