For a small business, nothing is more vital than a reliable cash flow, which is why it’s so frustrating when payment is late after the job is complete.
How do you deal with a client who’s invoices are overdue? How do you prevent future late payments from happening? What about saving your business relationship (or gracefully cutting ties with a client if necessary)?
1) Never Forget You Deserve the Money
Nobody likes being that pushy person asking for money. But here’s the thing: when it comes to your business, the moment you complete the job, that money should be yours. It doesn’t belong to your client anymore.
That being said, as cliché as it may sound, if you struggle with believing that, repeat it to yourself over and over while sending out invoice reminders. It just might help!
2) Contract Payment Deadlines
Simply put, you can’t expect your client to pay on-time if they’re not even sure when “on-time” is. Establishing payment deadlines into your contract is step one of receiving prompt invoices.
When that payment deadline falls is up to the business and your own cash flow needs. For some it’s 60 or 90 days, for others, 30, 15, or even due upon receipt. There is no right or wrong answer when it comes to invoicing due dates – it’s your business, your service, your income.
Of course you can always renegotiate if you feel the need to do so with a client, but in general, if a client balks because you have boundaries, that’s usually a warning sign you might have trouble getting them to pay later.
3) Incentives and Penalties
Want to give your client reason to pay you early? Consider adding an up to 5% discount on their invoice if they pay within the first week of receiving it.
And to avoid late payments at all? Often having the possibility of a late payment penalty in your contract, is enough to deter your client from delays – popular penalty options including a fixed price or small interest rate (between 2-9% annually) that is added to their total with every day spent overdue.
4) Automate Invoicing Reminders
For any late-paying client, sending out invoice reminders can not only drain your emotional energy, but your time as well.
Which is why taking advantage of automated invoicing software like QuickBooks, FreshBooks, Bill.com, or PayPal, can be so helpful. Not only can you set up recurring invoices for predictable client sales, but automatic reminders as well.
Plus, making payment easier for the client through digital, third party processing? Yes, please.
5) Don’t Get Angry
As frustrating as late invoices can be, the last thing you should do is get angry. Not only can it delay payment even more (nobody likes being yelled at or told what to do), but severely damage your reputation and business relationship with clients.
Late payments aren’t always malicious. Sometimes clients simply forget in the rush of keeping their own business afloat, sometimes they’re going through their own personal struggles, and sometimes they’ve hit a bad spot and don’t have the money to pay right then.
Whatever the reason, talking to your clients about the problem respectfully – offering alternate payment options or more time if necessary – can turn an awkward situation for both parties, into a strengthened business relationship and quick cash.
Be upfront. Stand up for yourself and your business. But don’t forget that they’re people too, who have their own multitude of problems to juggle.