How We Got Paid on Time
As small business owners, we’ve all struggled with needing to get paid, but not really wanting to call a client to ask about money. Again.
In six years of being in business, we had less than ten overdue or late payments from clients. Our payment rate was about 95%, and we rarely carried aging receivables. Our accountant was shocked.
During our company’s first two weeks, we ironed out a lot of details that have become a firm foundation. Each of us had owned our own businesses before and had our own stories about not getting paid. As we talked about it, we settled on some payment terms that aren’t typical for the industry. It had worked really well for one of our partners for years, and we saw no reason not to incorporate them into our new work flow.
All invoices are due within in 21 days. This non-standard time period makes the client actually see it on the invoice...and react.
A 10% late fee for all overdue invoices. It relays the seriousness of paying late. Cash flow is important to any business, especially when you’re not in the business of handing out interest-free loans.
Seems simple, right? While it is in practice, there are a lot of steps in between, and they usually start at the beginning of the project.
Have Clear Payment Expectations
Define payment requirements at the outset of the project. This ensures the client knows what is expected of them. Here are some things that help us communicate those expectations:
Detail the project payment structure in the proposal.
Recap the payment structure in the contract (you do have a contract every time, right? If you don’t - watch this little gem from one of my industry heroes, Mike Monteiro. Then go read his book).
Get a Deposit
It’s business. Your client expects this, and if they don’t, you need to seriously think about continuing the relationship. Unless you’re getting projects in the six-figure range, don’t break it up into a bunch of payments. We typically charge one-half at the beginning and the the rest before we deliver products or launch a website. Catch that? BEFORE.
Make it Easy for Them to Pay You
Make sure you accept credit card payments. Remember that you can write-off the transaction fees. And please, for the love of everything holy, don’t pass that charge to your clients. That’s an amateur move.
Be Flexible (when needed)
You know how many times we actually charged a late fee? Twice. We try be human about getting payments. There are exceptions, and if a client will simply communicate with us, we are able to show them some grace.
“Be firm, but be kind. Every time.”
Follow Up
If your accounting system allows, have automatic invoice reminders set up. We have ours set to send out a reminder three days before the invoice is due, and then every other day day (for up to 10 days) after the invoice is due.
It’s possible to get paid. You just need to view every transaction as a business interaction, because that’s what it is. It’s not personal. It’s just business.
