It is one of the biggest headaches home workers can face — after having provided a client with a great service or product, you are left waiting to get paid while your own bills begin to mount up.
Chasing down late payers can seem like a major chore, but it is essential if you are going to make your business a success. If you are waiting months on end for a client to settle an invoice and are simply hoping that one day the money will come in, small problems can very quickly become big ones.
There are many reasons for late payments, not all of them cynical, and the last thing you want is to rail a valuable relationship by having an unnecessary row over how and when you should have been paid.
But similarly, you do not want to be taken advantage of and used as a free line of credit! The more organised you are the more likely you are to get paid on time and spend less time chasing payments.
Take Control and Be the Boss
The biggest favor you can do for yourself when dealing with getting payments for your invoices is to be professional and remember you’re in charge. Be confident: you’re a dab hand at doing this in every other area of your business, and this is no different.
You need to be organized about keeping track of who owes you what, and when they were supposed to pay you.
Get a diary and be methodical; for instance, have a set time each week or month for doing your banking and making sure payments have arrived. Having a system in place that you stick to will make your life easier and mean you don’t get in the habit of chasing only when you realise that an invoice is really overdue and you need the money quickly to pay a big bill of your own.
Much of this can be done automatically if you use online bookkeeping software, some of which is even free. For instance, Pandle can automatically send chase emails to late payers.
Get a good diary and reminder system in place, and you’re almost there. In our experience, the majority of invoices aren’t paid on time due to disorganization and a slippery mind, rather than a desire to deprive you of your hard-earned cash.
Create a Payment Policy
Creating a transparent payment policy will ensure your clients are aware of how and when to pay you for your services. If you have a late payment policy in place, then you have the authority to enforce the rules.
Asking clients to sign a payment policy at the start of a contract will ensure that they are aware of your terms and conditions. Include specific payments dates — these may vary depending on what business you are in — as well as details of charges and interest for late payments.
How long you might wait to get paid can depend on the sector you are working in. Manufacturing companies, for instance, will generally pay after they have received a customer order, delaying payments to small businesses. Other sectors can be much quicker to pay — it’s important to check.
As well as including details of charges for late payments, you may want to highlight discounts available to early payers; this could mean a 2% discount for paying in 14 days instead of 28.
Offering a discount for fast payment might be beneficial to both parties; the client gets a discount and you get paid on time.
Your payments policy should also include basic home business details, such as your address and details of how and where you want to get paid. It’s essential to include a pay date in the policy so clients are aware of how much time they have to pay you.
Make sure your clients have a copy of and understand your payment policy. Be clear about your terms and conditions; ask your client to sign the policy before you get to work.
Net Days
Smaller businesses should consider the number of net days they are using — that is how long they wait to get paid by the client. Many home business owners automatically opt for the 28-day option but it might be worth reducing that to 14 days or even 7.
Remember, the longer you wait to get paid the less likely the money will come in.
Deposits
If you are working on a project that may span months and you have to reserve time in the future to work on it, get a deposit up front so if it falls through you won’t be left out of pocket. Asking for a deposit will ensure your time is not completely wasted.
Likewise, you get phased payments with clients, particularly if you are working on a long-term project or if it starts to drift. If lots of work starts getting added, make sure you agree on terms straight away for the extra work rather than have the conversation at the end: some firms will be reasonable, but others will see your demands as an unnecessary cost.
Get Your Facts Right
There is nothing worse than calling a client to demand payment only to find you have the invoice details wrong, or that it never reached the client in the first place. Be clear of your facts before you begin sending reminders and demanding payment.
Make sure the invoice is accurate when you send it in. Many will, perhaps rightly, refuse to pay an invoice with wrong or incorrect details. The best way to avoid this is to get it right the first time.
Chasing Down Late Payers
The first order of business when a client has missed a payment is to politely nudge them and point them in the direction of your invoice.
Sending a polite reminder email will help you get noticed; following up with a quick call should your email go unanswered will also help your cause.
Remember to stay professional and courteous. Being abrasive and rude will work against you with most people.
Of course, there are those who simply don’t pay on time, no matter how efficient your reminders are. Unfortunately, these are the tricky customers who need a tougher line and it is time to think hard about whether you want them as a client in the future.
There are a few different options you can take. Firstly, if they want more work done, then you can insist that they settle their debts first. You can also insist on a different payment approach going forward so you get paid up front to avoid future hassle.
Other options include selling your invoices and getting someone else to do the chasing for you, known as invoice factoring (an important option if you need the cash, but you won’t get anything like what you’re owed), or pursuing a claim for payment legally, perhaps through the small claims court.
It is worth noting that many businesses suddenly pay attention when their bad behaviour is called out on social media.
Accept It’s Part of the Job
Whilst you may see being the late payments manager as your role, in reality it’s an essential role that you need to embrace as a business owner! You need to adapt your mindset to accept this and depersonalize the process. By using your bookkeeping software to take out a lot of the legwork, you can maintain a healthy and professional relationship with your clients.
For many home business owners, the priority is the day job. Providing your client with a good product that you can be proud of is essential for the success of your business. Nevertheless, if you fail to make sure you get paid on time, all that hard work would have been for nothing.
