Working with late-paying clients who don’t pay on time or who don’t intend to pay at all is particularly challenging. Small-business owners, consultants, and entrepreneurs understand how challenging it can be to maintain a steady cash flow.
Running out of money, including failing to receive payments on schedule, is one of the main reasons startups fail before their time. This may seem obvious.
We’ll look at several pointers, instruments, and practical techniques that might assist you in collecting money from unreliable clients and preventing delinquency in the future. We’ll be concentrating on single proprietorships, independent contractors, and freelancers, and we’ll be going over numerous different things to bear in mind.
How to Handle Clients Who Pay Late
I would like to know why your client’s payment has yet to arrive since the next step is to speak with them about the problem.
After they’ve made their first late payment, a client will probably explain why they were late if you contact them.
They might need to remember their bookkeepers might follow a different schedule (a 90-day cycle as opposed to a 30-day cycle), or they might not have been satisfied with the work. It’s crucial to know how to approach your clients after the first missed payment, so here are some circumstances you can encounter:
1. Dissatisfied Client
If your client complains that they were dissatisfied with the work you did, it could signify one of several things. Either they have higher standards than they initially seemed to have, your work was genuinely subpar, or something in the contract gave them a false idea.
Request a list of the things they want to be altered. After a sincere conversation, you’ll discover that your divergent ideas for the outcome are similar.
2. The Bankrupt or Cash-Strapped Client
Your client may be postponing payment because they are experiencing cash flow issues. They might be in a sluggish season, be a new company that hasn’t established itself, or have different reasons.
If you get in touch with them and they respond that this is the case, you can propose a payment schedule that works for both of you. For obvious reasons, lump-sum payments are preferred, but there are situations when you have to make a concession, such as distributing the payment over a few weeks or months.
3. The Complainer
A client could potentially assert that they never got an invoice in the first place. If so, could you resend it and call your point of contact to follow up? To eliminate the possibility of human error, you might also think about automated invoicing tools like QuickBooks, PayPal Invoicing, Microsoft Dynamics 365, and FreshBooks. Try to send invoices as soon as your task is finished. Consider including a new column in your customer relationship spreadsheet to record the precise date and time you sent the invoice.
Procedures to Follow to Prevent Late-Paying Clients
You need to specify the conditions governing when you anticipate receiving money for completed work when taking on a new client. There are further actions you can do that could aid in altogether avoiding this issue:
1. Demand a down payment
We’ve mentioned it before, but it bears repeating: When you start a new job, you should ask for an advance deposit of about 25%.
2. Timeliness of invoices
Soon after finishing the job in issue, send out invoices for the remaining payment owing. When your client is still thinking about the job, you have a better chance of getting paid on schedule.
3. Payment Modification
When you can, you can go the extra mile for your client by providing various options for payment. Please ensure your client goes through the same processes, like mailing accurate checks. Your buddy in this situation is an electronic payment option like PayPal, though there are many others. Although you shouldn’t create a new account for each client, you can surely figure out what works best for most of them. When it works best for you, could you make compromises?
4. Rebates for late-paying clients
Think about providing a 2-10% discount to customers who pay within 30 days of the project’s completion. They may not require any other inspiration after all.
5. Late charges
If you don’t make the payment within the anticipated date, you should specify in the conditions that action will be taken, including late fees of roughly 1.5% every week past due. The punitive action may go against your free-spirited, happy-go-lucky freelancer nature, but it sends a message of authority that your clients will likely take seriously.