You need cash to run your business, otherwise you’d go under. So, it’s understandable that when doing business with a client you expect to be paid for your services on time. Keep reading to learn how to kindly handle late customer payments.
Research your clients ahead of time
If you’ve never worked with a client before, Google them and ask your associates if they know the prospect.
It’s also helpful to see if any complaints have been submitted against the client through the Better Business Bureau. You can essentially run your own client risk assessment by utilizing information from sources like court records and notices of intent to lien.
This research is crucial when considering the impact of payments within 30 days, 60 days or 90 days. A company whose customers take 90 days to pay would likely need six times more cash to float project costs than a company whose customers paid their bills in 30 days.
Check out this helpful video from Turn Key Doc:
Establish contractual agreements (FREE service agreement tool)
Payment terms and conditions should be clear before a contract starts.
You could start by asking for an initial deposit like 25 percent down. If the client is small, consider asking for a smaller percentage. In the event a customer is late to pay, this helps you absorb some of the hit.
Some direct contractor-to-client contracts opt for seven- or 14-day payment terms. Otherwise, it’s often assumed standard 30-day payment terms apply. Contracts should address these legal concerns:
- Payment schedule
- Terms (Example: 30-, 60- or 90-day payment period)
- Preferred payment method (Checks, credit card or PayPal)
- Scope (Exactly what work is expected for the job?)
- Deadline (Expected completion date)
- Late payment policy (Amount charged if invoice is not paid on time)
Be sure to get everything in writing, including details regarding fees and interest. Get started with your contractual agreements by accessing these free and easy-to-use tools:
Invoice early (and correctly)
Invoice as soon as work is completed and make sure it’s in the correct format. For most contractors, an invoice is legitimate if it includes the following information:
- A unique, sequential invoice number
- Company details for your company and the client’s company
- Any relevant reference numbers. For example, a value-added tax (VAT) registration number.
- A description of the services being provided.
- The net, gross and VAT amounts.
Don’t let the invoice sit because the customer might take this as a sign you don’t need your money right away. If the invoice goes unanswered for a few weeks, you can send a reminder email.
Automate the payment process
Using regular mail to send invoices isn’t very efficient. They will likely take three-to-five business days to arrive and include postage fees. Automated invoicing emails have a better chance of being sent to the right accounting professionals – immediately. Most customers prefer email anyway.
Setting up automated billing processes is huge for contractors who are too busy for the manual hassle, and when it comes to getting paid, exchanging waivers is a step that’s used almost everywhere. If this is done manually, it could add days to the time it takes to collect cash. We suggest automating your waiver exchange process with a platform like Waiver Inbox.
Additionally, by using any of the accounting software options mentioned earlier, payment automation becomes smoother. The software will log what emails have been sent and what phone calls have been made to easily show you what else needs to be done.
If there hasn’t been payment, send a reminder (FREE template)
Most of the time clients aren’t purposely trying to be difficult. Like all of us, they’re imperfect humans who might not be as organized as you (or the invoice was lost or misplaced). You can help them out by kindly guiding them toward payment. Here’s an example of what a payment reminder letter or email could look like:
I hope this message finds you well. I’m reaching out today with a reminder that next week, [insert date], your payment for [insert project name] will be due. I’ll be sending an invoice in the following days but thought a friendly reminder might help us both stay organized!
Please let me know if you have any questions or concerns. Thank you for your time!
[your name and affiliation]
Check out this helpful video from D&V:
Know your rights (FREE interest calculator)
Following up with a phone call and contacting someone else in the company are the next boxes to check off. But in the event a client refuses to make a payment, you have the right to hire a reputable debt collection company.
It’s also worth noting you have the right to implement a late payment fee, seek reasonable debt recovery costs or charge interest on late payments. Many contractors are reluctant to use these options out of worry they might upset customers. However, you’re welcome to check out this free monthly compounding interest calculator.
Still nothing? Perhaps it’s not worth the chase
Is chasing down this client really worth it? This would be a good question to ask if the payment was only a small percentage of your yearly income. You could end up spending more time and money than the invoice is worth.
How to kindly handle late customer payments
There are many steps you can take to prevent and deal with late payments, which include utilizing the helpful tools and practices in this blog post. We know you work hard for your clients! There’s nothing wrong with wanting to get paid on time so your business can thrive.