One of the greatest difficulties of running a service business is managing cash flow. Cost like payroll, rent, utilities, and software all come out of your bank account every month, however customers can now and then take multiple months to pay their invoice. Here’s how to make sure your money comes in somewhat more on the normal.
I will get to the subject of how to react to customers who pay late, yet first how about we lay some preparation:
The most ideal approach to abstain from holding up to get paid is to never put yourself in that situation in any case.
Project deposits and installments
The client originally paid an upfront deposit and then regular instalment payments while we were working on the project. So when the final launch came, waiting 360 days for the final 10% wasn’t too painful.
Here’s how we used to handle selling a new client/project at my old office:
- 60% deposit paid upfront as soon as the verified bill is submitted.
- 30% paid after the work is approved.
- 10% invoiced after the site is commissioned.
You might feel uneasy asking clients to pay before they’ve seen work, or before the finished product is launched, but you shouldn’t. They pay you, and you provide the service. You aren’t working for your dinner here. If you don’t protect your cash flow, nobody else will.
Net zero payment terms
Next, stop putting ‘Net 15 days’ or ‘Net 30 days’ on your invoices. I’ve had clients ask for longer payment terms, and I simply tell them that it’s not our policy. It should say “Due upon receipt”. Explain this to all new clients and work it into your terms and conditions that payments are due as soon as they receive your invoice or the work stops. That’s reasonable cautioning.
Adopting this strategy to collecting payment might make you seem like a hard leather, but this is a business! You are providing a valuable service and you need to get paid. Does the client get to buy their groceries and wait 30 days to pay? Or do they need to wait 30 days to receive their paycheque? The world doesn’t work that way and neither should you. You can’t afford to work that way.
If your client doesn’t comprehend this payment policy, then that should raise some red flags and maybe ending the relationship right there could save you from working with a scum bucket.
However, imagine a scenario in which your client isn’t a slimeball, and they’re just part of a big machine that has a strict policy when it comes to accounts payable? You’re X, and they are Y. Should you stand your ground with net zero and risk losing the client or comply?
I suggest two things:
1) Make it clear to your customers that if their payment is late, you will will stop working on their project until the point that the invoice is paid. This will light a fire under your customer to push invoices through accounting and apply weight where required.
2) Ask for the name of the individual in account department and turn into their closest friend. Ring them and introduce yourself. Ask them what demonstrates they like and afterward imagine you like Dr. Who also. Be as friendly as could be expected under the circumstances. If you ever send your customer a If you ever send your client a gift, be sure you send something for the person in accounts payable. Trust me; you’ll get paid on time.
Push for online billing
The whole concept of invoices and cheques is somewhat bygone, correct? Somebody needs to mail you a piece of paper with their signature, and you need to walk that paper over to a bank to deposit it? Crazy.
Your client should be able to pay their invoice via an e-transfer. If they tell you they are too big a company, ask them how their company caters their business lunches. I doubt they mail them a cheque.
Here basically, we tell organizations who invoice us for various services that in the event that they accept e-transfers, we can pay them faster than if they they need us to write a cheque.
So converse with your customer in advance and reveal to them how you like to be paid. Regularly it’s not the case that your customer won’t pay online, they simply don’t have a clue about there’s some other choice.
Offer month to month retainers
Nearly everything in our lives is organized into months or fortnightly periods. Payroll comes out fortnightly/monthly, rent comes out on the first of the month.
It’s frequently simpler for clients to budget your organization’s services into their month to month costs.
If you’re selling a one-off project that will take months to complete you can, and should, work out a monthly payment plan so that it’s paid off as soon as it’s complete.
This way you can maintain your cash flow, and your clients get a longer term relationship with your company in a way that’s easier to budget. Win win.
The most effective method to manage a customer who pays late
Even if you follow the previous advice and have laid the foundation for consistent payment, you’re still going to get stragglers. How would you manage it?
Don’t send an email
They don’t work. Emails are the easiest thing in the world to ignore. “Oh, you sent me an email? Sorry, I must not have received it. I think it went into my junk folder.”
Even with a tool like Sidekick this still happens.Plus, it’s hard to get the tone right over email. You either sound like an apologetic softy or an evil robot.
Get the telephone
Believe me; it’s more awkward for your customer than it is for you. Trust it or not, the best time to discuss about payment is the point at which your customer approaches you for new work.
Attempt this content:
“It’s awesome working with you, and I’m extremely glad that you need to enlist me for another job, but we need to chat about payment terms for a moment. My payment terms are due, and I expect them to be paid immediately to go up against this new task. It is safe to say that you are ready to work that?”
It’s polite but to the point, letting them know you have conditions to taking on the work and they can’t just do whatever they want because they’re the client.
It will likewise influence them to feel somewhat humiliated about being late so whenever they’ll likely pay you on time. In the event that they would prefer not to comply with those principles then perhaps they do not merit keeping as a customer.
Leave a final deliverable until your client has paid the final invoice. Whatever it is, don’t give your client the power to withhold payment from you without you having any leverage.
Some final tips
- Mark up whatever you purchase on behalf of your clients by at least 30%. This is standard practice, and it ensures you make money from the things you buy for your client and not needlessly put your company at risk for purchases. If your client doesn’t like the markup, then they can buy the items themselves.
- Collect on the invoice as soon as it becomes overdue. Allowing clients to wait more than 30 days to pay an invoice can seriously affect your cash flow. If you are diligent about collecting you will get paid faster, it’s as simple as that.
I need to get an information from you. What different ways do you ensure your income/cashflow?