When you take on a new client and accept their custom on credit terms, ground rules have to be set in advance of supplying them with goods and services. Don’t wait to shut the gate after the horse has bolted. Protect yourself before they spend their first dollar with you, with these recommendations.
- Agree on specific account terms and conditions. Contract your commercial clients to an agreed payment time-frame. While it is good to remind clients of your payment terms on each invoice, it is not enough to leave it there. The terms need to be advised and agreed before the service is provided. I suggest 14 days is a reasonable time to pay; some may insist on monthly payments at the end of the following month. Earlier is of course better, but contracted terms for end of next month at least provide you with some certainty. With a contract in place, late payments become breach of contract rather than small claims you need to prove.
- Invoice each and every job separately. That way, if there is a query or dispute regarding a job then this shouldn’t prevent payment for other jobs.
- Include penalties for late payment in your terms. Even a $20 per month per overdue invoice fee can be a deterrent against late payment. If your client refuses, it could well indicate their intent to remain slow payers. Decide if you want to keep them.
- Increase your rates. But offer a discount for payment within terms. This incentive (rather than a penalty) may have the desired effect, or you may get paid more for your patience. Your letter or email explaining your penalty or discount solution can be general and not directed to specific clients. You can use the following text: “Due to a number of clients allowing their accounts to become overdue, and the resultant stress this is causing for our own cash flow, we need to address this issue with our commercial clients…”
- Appeal to your client’s accounts department. Be emotive when emailing or writing to them. Payments for your invoices don’t go into the coffers of a large organisation. This is your livelihood. When you don’t get paid, your wife and kids go without.
- Keep on top of accounts receivables (with all clients). Don’t wait even one week past the due date before sending an overdue reminder notice. Continue to send them weekly, one for each and every invoice overdue. Bombard them with the consequences of their tardy payment system. The accounts person may well conclude it is easier to pay than stall. FreshBooks users should set up the payment reminder feature to automate this process.
- Suspend services or supply. Your second reminder should advise that their account is on hold and services or supply of goods are now suspended until payment is made. It should also advise that as they haven’t responded to your first reminder, you are prepared to use legal action to recover amounts owed. Never be apologetic for your insistence on getting paid for the work that they’ve asked you to do or goods they’ve ordered.
- Forewarned is forearmed. Listen to others and your ‘gut’. When you have doubts about the ability or willingness of a business to pay you, place them on a shortened collection cycle – weekly. Insist on agreed account terms, perhaps also get part payment in advance if you are to incur expenses in their behalf.
- Make it easy to get paid. Offer various options. Most clients are able to pay via deposit over the bank counter, or via internet transfer. BPay or direct debit may be great options where you are. Consider using a payment gateway that integrates with FreshBooks to accept credit card payments. The easier you make it for clients to pay you, the more likely you are to be paid (and sooner). Your invoices should clearly state the payment methods you accept, leaving the client with no doubts as to how they can pay you. Your terms can even stipulate the methods of payment you accept. I recommend bank transfer because there is no cost to you and no clearance days. If you refuse to accept cheques then you’ll never hear “your cheque is in the mail”, or “our cheque run is at the end of the month”.
- Resolve that all your commercial clients have agreed account terms in place … or they have to pay cash up front first!
- If you supply materials/products, you might also include: “All materials supplied and used remain the property of [YOU] until this account is paid in full, and [client] covenants to allow access for retrieval.”
- Invest in engaging a solicitor to assist you in preparing legally enforceable trading terms for your locale.
Your terms should include items such as :
- Payment in full is required within seven (7) days of invoice (or whatever your terms are).
- Accounts referred to a Collection Agency or a Solicitor will have legal costs and commission added to the amount due. This can help prioritise payment of your account over others’.
- Where more than one party is liable for payment of this account, they will be liable jointly and severally. This one is essential for partnership clients.
- Perhaps if your client is a Company, then a Director’s Guarantee should be required. This means you can pursue the Director personally for the debt of the Company.
All of these suggestions can help you get paid faster, reduce average days and balances owing you, improve cash flow, and help you to remain focused on your core activities and earning income.
The second article in this Getting Paid series will discuss Setting Up Payment Protocols
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