The cheque is in the mail? How to deal with those Chronic Late Payers!
Clarke McEwan Accountants
Any small business's lifeblood is its cashflow. If your business operations rely heavily on regular payments from clients and some won't pay on time, such delays can be frustrating, or in the worst case scenario, threaten the very livelihood of your business.
Many small businesses are still struggling to build reputations which means they need every client they have, whether they're faced with late payments or not. And with the added publicity through social media that lies at every client's fingertips these days, you need to stay ahead of the game.
Business is about building relationships so cutting out every client who won't pay on time is not an option. If you depend on regular payments from those who purchase goods or services from your small business, there are a few things you can do to ensure you maintain that great relationship and always get paid on time.
1. Communicate Your Policy
Implement a policy that will work for you. If you require full payment upfront, and don't wish to begin the work until the payment is received, take this step because it rarely deters clients. Everyone knows where they stand, it minimizes headaches, reduces stress, eliminates money-chasing, and establishes an expectation of trust from the get-go. And it can work in your favour by weeding out the clients you don't want to deal with anyhow.
You could also introduce your payment policy at that start of any new contract with a client. By clearly outlining your policies at the start of the business relationship you have something to refer to if the client fails to meet that agreement. If you're providing a service, it is standard practice to set milestones and deliverables from the beginning, especially on large projects which will require months of your hard work to complete. These milestones should outline what will be delivered by you the provider, along with the payment amount that will be expected and due at the time of that delivery. Your wording should also stress what the consequences will be if payment isn't received on time.
For short-term projects, you may require partial payment as a deposit before work begins. Many tradespeople and professional service providers ask for a deposit at the time contracts are signed as a good-faith payment. Even with this in place, however, the final half may be late in coming once work is complete, leaving a business to decide whether to continue with the next project the client is requesting or wait until payment on the last project has been submitted.
Your policy should outline how late payments will be handled, including service charges at set intervals. Each state has its own regulations, but in general this is charged as a percentage of the total due. Some businesses have found taking a more positive approach to this is more effective, though. Offer a 5-10% discount to any client who pays his invoice early or on time. You may be surprised how many debtors take you up on it. If you do opt to take a late-fee approach, be sure to look at it as more of a deterrent to late payments than a money-generating tool for your business.
2. Offer options
It helps to offer options to clients. There are many invoicing apps available; some are even free. Automated invoicing ensures you never miss billing someone for the work you do, among a myriad of other benefits.
To make things easy, choose an invoicing solution that allows one-click payment. If your clients receive an invoice with a link they can click to pay using a stored credit card or PayPal account, you'll be much more likely to receive payment without delay.
For recurring payments another option is PayPal, which is known and trusted by just about everyone. Clients agree to automatic recurring billing, and PayPal takes care of the rest. Each month, it charges their credit card and deposits the funds to your PayPal account, with a simple e-mail notification that the charge was successful.
3. Offer payment arrangements
Life can be unpredictable. Your client may have had every intention of paying until something happens. This is where you need to communicate to get your payment. Pick up the phone and get in touch. A client may have been busy, circumstances have changed, or something unexpected has left them unable to address payment. Without becoming your clients "bank" you can still offer a payment arrangement, with or without interest charged, to meet both parties' needs. You are paid and the relationship is maintained. For this time. Naturally, you need to determine how many times you are willing to bend your own policies. It is best to say at the outset that this arrangement will only apply once, to this payment only, and that you expect all future payments to be made on time. Once again you maintain control by communicating an expectation in line with your policy.
4. End the Relationship
Unfortunately in some cases a non-paying client can become the source of the vast majority of your financial stress. Non-payment is often the primary reason a small business will decide to terminate a client relationship. As valuable as a client's money may be to your business, if months have passed with no payment, the lack of that money is obviously not helping your business at all. Even if payment eventually comes in, the time and mental costs you spend each month tracking payments, sending notices, and worrying that the client won't pay aren't worth it. In this case, the best thing you can do is put the late-paying client on notice that you'll be ending your working relationship at the end of its current term.
You can graciously bow out while still being firm, especially if you've mentioned the problem with late payments to the client previously.
If you can end things professionally and amicably with the client, that's ideal. Unfortunately, there will be cases where your client won't take it well despite your best efforts. As long as you've conducted yourself as professionally as possible, you shouldn't have any regrets and as time goes on, you'll likely have very few relationships with clients that don't work out.
Adapted from an article by Jason Demers 2014
