Do you worry about chasing down payments because you don’t want to get into a touchy situation with your clients? Just because the client hasn’t paid in a timely manner doesn’t mean you should dump them from your client list as soon as they get around to paying you; it’s possible to collect with a smile.
You can find scores of articles talking about the dire state of the economy leading big businesses to pay late and collect fast and people struggling to keep their businesses afloat. We’ve provided some tips on dealing with non-paying clients previously, but here are some techniques used by businesses that have have collected payment without breaking knees or relationships.
Before Starting the Project
- Add clauses to the contract: Writer Laura Bergells of Maniactive picked up this tip from an editor. “In the contract, state that you own the copyright up until the point of final payment, at which point the copyright transfers to the client. The threat of a copyright lawsuit is often stronger than a suit for non-payment of services,” Bergells says. Since you can’t predict whether a client will be late with payment, cover yourself by saying the service you provided remains yours until the payment is made.
- Build relationships: If you work with an organization rather than a couple of people, work on building relationships with people in the organization from the get-go, as those people can step up for you. “When a late payment becomes a serious issue, key people inside the organization will fight for you to get paid immediately. I’ve been known to send a large bouquet of flowers just to say ‘Thanks for going to bat for me.’ Acting like a jerk may get you paid once, but acting like a professional will get you paid consistently for the long term,” says Nestor G Trillo, an interactive strategist at Ava Niu. Trillo’s company will stop working with clients who consistently pay over 90 days late.
- Use a credit card payment system: After losing $5,000 in payments, Chief Executive Officer Matt Scherer of Scherer Communications started using a credit card payment system that works well for him. I can hear some of you saying you don’t want to give the credit card company a percentage of the money you earned. Scherer works around that with a contract template that includes a one-time charge that covers the credit card fees. Another option is to add an item to the invoice to cover the credit card rates.
- Outline the project or product at the start: At the start of a project or before selling a product, outline the specs, time frame, payment time frame, the cost of not paying on time and a discount rate for paying quickly. The helpful thing about this set-up is that it covers the project or product — not just payment. Have the client sign off on these requirements binds them and the penalty and discount part can be a powerful motivator.
After the Project is Complete
It’s best to be proactive before starting the project to ensure you receive payment on time. But it doesn’t always work out that way.
- Give discounts: Offer a discount on the invoice if the client pays within x days. “One thing has worked well for us — giving a 2 percent discount if they pay in 10 days. And, to note the discount and savings on the invoice,” says Michelle H. Wallace, an independent consultant. She has seen success with this set up for both clients and vendors. “The tradeoff between waiting for the full amount and improved short-term cash flow was a no-brainer. Plus, my company got to buy more hours, and improved responsiveness on our payables. It was win-win.”
- Use Priority Mail envelopes: Have you tried calling and emailing your late paying client? Michelle Dunn, a credit and debt collection expert, has a solution that she reports works 98 percent of the time. “Go to the post office and get a cardboard red, white and blue priority mail flat rate envelope. Put a strong collection letter in the envelope send it out with delivery confirmation and wait for the check to arrive. Make sure the letter you use, has specific amounts, and the date you need to receive the payment by,” says Dunn.
- Send Postcards: Cliff Stepp has a creative solution to the “old past due notices being shoved aside” problem. So he started sending his client colorful retro postcards with a humorous twist. “After the second postcard, the 120 day + bill was paid in full!” Stepp says.
- Use a letter template: Melinda Mallari sends a letter with the following message, “We are unable to find a record of payment for Invoice # dated ___. Could you please send a copy of the canceled check or a credit card statement verifying the payment transaction so we can update our files? We apologize for the inconvenience, and appreciate your kind assistance in this matter.” This works 80 percent of the time.
- Explain the impact: Tell your client straight out how your business works in providing a product or service. Mary E. Davis, author of “The Entrepreneurial Mom,” finds this process pays off and shares an example. “I remain business-like, but explain that ‘I am a small business. And when I have even a few clients who let their accounts fall behind, that it impacts me in a tremendous way.'”
- Withdraw payments with automated clearing house (ACH) network: CPA and Director of Development for Treasury Software Glenn Fromer explains that collecting payment through ACH, businesses won’t have to deal with credit card merchant and processing fees. Small and medium businesses can use the service, which is available from commercial banks.
- Take the nice approach: Laura Posey, vice president of Dancing Elephants Achievement Group, struggled to get a client to pay after being 120 days late. She did what many do: sent email or called the client every few weeks. Then she moved on to the next step and emailed or left a message for the client on a daily basis while letting the client know she was concerned, not angry. “By the second email, the client sent me an email telling me that she had had an unexpected death in the family and she had let lots of things slide during that time. She apologized profusely and sent the payment right away,” Posey says. She received a reward for her gentle handling of the situation and landed more projects with the client.
How do you collect late payments while keeping the client relationship intact?
Photo credit: Jeinny Solis S.