Getting Paid: How To Prevent Clients From Paying You Late
Freelancers have the most unusual type of obstacles when it comes to getting their clients to pay them. Beyond customers going M.I.A. or claiming they forgot, sometimes freelancers find clients refusing payment because they are unsatisfied with the work or not sure if it’s what they wanted. Yet, the work was done, so you deserve to be paid. End of story.
As a freelancer, you need to take proper and effective precautions to make sure you don’t find yourself in a position where a customer is paying you late or not even paying you at all.
1. Do Your Research
Get to know as much as you can about a client before you agree to do business with them. Get references from people who have worked with them and even pull a business credit report on a client if necessary. You must find a way to verify their financial behavior. You don’t want to bother wasting your time with someone who is notoriously a deadbeat.
2. It’s About the Contract
Never do any work on a freelance basis without having a well-structured, detailed contract. Although this takes time to prepare, it can end up saving you time (and huge amounts of money) in the end. Verbal agreements, handshakes, etc., these kind of agreements will never be enough. You need it ALL in writing.
You need to make the customer sign to the fact that, basically, they won’t be wishy-washy.
Be sure the contract specifies exactly what the payment terms are. Do they owe you money up front? When is the exact due date of the payment? And of what amount? Don’t leave any room for questions. Make sure a customer knows exactly when and how much they have to pay and signs to acknowledge this.
Include in the contract that “opinionated oppositions” will not be accepted. Specify that customers are paying for the service provided regardless of final reactions and that you are promising to deliver the service to the best of your ability in line with everything they ask.
Include in a note that if a customer decides that the original service was not what they had intended, or if they’ve changed their mind, that is to be considered a separate process and transaction. You need to make the customer sign to the fact that, basically, they won’t be wishy-washy. This video provided by the “Don’t Get Screwed Over” campaign highlights exactly what I mean by “wishy-washy”.
3. Utilize the Invoice
Just as with the contract, don’t let your customers have any questions after receiving the invoice. Provide every detail a customer would need to make a payment: how far away the payment due date is, when the exact payment due date is, how you accept payment, and how to contact you with payment details.
Don’t include other unnecessary language in the invoice; get right down to the point. Also, use some well known tricks when invoicing your customers. For example, if you have a please and thank you in your invoice, you’re more likely to be paid. Take advantage and craft the most effective invoice that you can.
4. Constant Communication
Sometimes customers just forget. It really can be that simple. Make sure this doesn’t happen with your customers. Keep in touch with them so you stay on their minds (and their payment priority list).
If it is a week before the due date and you still haven’t received your payment, send your customer a friendly reminder letter that their due date is one week away. This can be a huge help for your more absent-minded clients. Also, if customers see how closely you watch your books, they’ll be sure to always make your payment a priority.
5. Make It Easy
Let’s face it: the easier it is to do something, the more likely someone will. Use this philosophy when it comes to clients. If paying you is more convenient, it’s more likely they will. Don’t just accept checks. Look at the many options out there that allow you to accept credit card payments or direct debit. This allows them to pay immediately when receiving your invoice and cuts out the time you have to wait for it to be mailed. Check out Stripe as a great way to process payments.
Although sometimes it seems like it might be more simple just to ask for everything up front, not operating on credit can lose you customers. It just takes a little attention to details initially, but if you focus on streamlining your process, you can make invoicing customers and getting paid as seamless and simple as can be.
You should always seek independent financial advice and thoroughly read terms and conditions relating to any insurance, tax, legal, or financial issue, service, or product. This article is intended as a guide only.
Photo credit: Some rights reserved by jirkaejc.
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Here is a case. I have a “big gun” customer which is important for the business. Unfortunately their payment delays are more than common. Having very clever contract signed, I can easily stop working with them until they pay. But I think I’m the only one who’s gonna lose from such a radical step. Any suggestions?
Thanks
Hi Ivo!
Thanks for stopping by. That’s a tough situation you are in, especially because it sounds like even if you stop the work, that is not going to help you get paid. Quick question:
1) Do you want to work with this customer again? Or do you hope to just simply close this one contract out and be done with it?
Do you feel like you’ll be at a loss if you stop doing business with them? Does your contract state detail by detail how you expect to be paid? Do you charge late fees?
If you want to keep doing business with these guys, I suggest re-writing your contract to include late fees if it doesn’t already.
However, my gut is telling me it seems like you took the proper precautions. IF you think you can risk losing the customer, you need to focus on getting this paid and closing the job.
To begin, I’d reach out to your contact, let them you are stopping work until they pay, and say it’s merely how you run business and you are happy to work with them to get you the money. Would they prefer to pay by CC (not sure if this is already an option)? Do they need installment plans? If you are somehow able to have a conversation and make an agreement, get it in writing. However, this is an ideal situation, being that you can “just talk about it” and all is resolved. If that doesn’t work, I’d look at going to some more severe sources. You say “big gun” which makes it seem like the account total may be rather large? If so, it might be worth it to send the account to collections. Collection agencies do charge quite a large commission fee, so it’s better to start with some “threats”. Here is an example of a letter you can use in the severe situation to send to a customer to let them know how serious you are: https://s3.amazonaws.com/fg-com-production/tools/pdfs/ultimate_reminder_letter.pdf. Also, a lawyer is an option, but again it’s about evaluation of amount due vs. cost of service. At the end of the day, you could also look at selling that invoice through a factor (Receivable Exchange is a good place to start). You will get cash immediately for the unpaid amount, however not the total sum. It is then left in the factors hand to collect.
I’d love to know a few more details about your situation and would be happy to guide you through the process, especially depending on where you stand with the customer, and if you think the relationship can be “saved”.
Ivo – First off, I obviously don’t know the situation so what you do is entirely on you…. that said, here’s what I’d do:
1) I’d talk to my contact there and explain the issue and see if they can help.
2) If they can’t or won’t, then you need to structure things so that deliverables are actually only released when you get paid. For example, if you’re building a website, they only get the final code when the final payment is made. Not billed for, received. Same for intermediate steps. The easiest time to do this is at the start of an engagement. I always ask for 25-33% at contract signing time. I start work when that initial payment is in my hands. If you start work before that and they know it, they know you’ll work before getting paid. Don’t do that.
3) However, make it easy for them to pay you and invoice them before the next phase is to start. Especially with larger companies the basic process of getting an invoice paid might take a week or two if it’s really fast. Don’t invoice when a phase is supposed to start, invoice before that and note that it’s due on the date that the next phase should begin.
4) Work with the client. It might be that they’re swamped with invoice at the end of the month so if you are in that mix you see slower payment… but if you invoice on the 20th they’re unburdened and can process things faster.
If they’re being abusively late (more than 30 days), start looking for other business to replace the revenue that they provide and cut them loose unless they bring something else to the table for you (i.e. Company X is very well known and because you can say X is a client you get significant other business).
This is really great advice Rick, especially about when to bill larger companies. They notoriously take longer to get checks out (because they have many more hoops to jump through to make that happen). And, being smart about your billing day is very keen. Although, I have seen in the past were some people responsible for the accounting get so used to things being due at the end of the month, they easily over look something due a week before. If you do bill on an atypical day, I’d be sure to always send a reminder email to the contact so they don’t let it slide it with all the end of month bills.
Sorry to say this, but there are people out there that are all to willing to take advantage of freelancers. Why? Because we let them get away with it, that’s why.
And, in this economy, there are plenty of people who are hurting for work, and here are the screwing over types with…
…a gig.
Be careful out there. As the video says, don’t get screwed over.
You are right Martha! I think the video does a great job of pointing out how frustrating it can be as a freelancer, because people can come up with so many excuses to not pay. Have you seen the F*ck You, Pay Me video? I think you’d enjoy that one as well! Gives great advice to freelancers on how to avoid those people who would take advantage: http://vimeo.com/22053820.
No money, no work. It’s simple and I stick by that rule.
I ask for half of it upfront and then the rest before I release the files to them. I tried being nice about this with customers but the biggest warning sign that things are going to get bad is when they can’t pay you half of the money right away.
We are freelancers and like another person said we are usually not treated well by many of the big companies. You need to stick to your guns and if you really want to get them to move on the payments include a late fee in the contract. Of course talk to a lawyer.
Ricardo,
Great stuff. I think a lot of people just starting out fully invoice their clients because it is a way to get more business. I love that you brought up late fees. I think it is something every freelancer should include in their contract. Nobody wants to have to pay more than they need to (and they can be great negotiating terms). However, as mentioned check with your lawyer, or at least look up the usury laws for your state so you know you aren’t charging too much interest.
This has become a rule for me lately. I only relax it a bit for a returning client, but I am pretty strict with any new client. I used to think I would lose clients if I did this when I was new. But when you have the confidence in your work, there is no shame in asking money upfront, and that actually makes your client think you must be good to command such terms. Works for me!
Paying late isn’t equals to no payment. Thus I don’t think it is a lot of trouble.
Late payment is better than no payment, however, for a lot of business owners, not getting paid when they are expecting too can really mess up their cash flow and can cause major problems for their business operations (and as a freelancer, even personal expenses).
I’m a Virtual Assistant and have my payment terms in my Terms & Conditions which I always sent to a new client once they’ve decided to take me on. When we speak on the phone I tell them I will be emailing these terms and I outline the main points – always specifying the payment terms again!
I also invoice new clients after 2 weeks so I don’t find out they’re bad payers after doing a month’s work for them, and I have “payment due within 14 days. No further work will be undertaken once an invoice becomes outstanding” on the bottom of my invoices. I use Invoice Bubble which lets you add tailor-made comments to the invoice.
I occasionally have bad payers but if they persist then I fire them.
I also run a CV-writing company and my fee is paid upfront. I used to ask for half before and half when the CV was finalised but a couple of people took advantage of that and ruined the whole thing for everyone. All in advance now.
Joanne,
I think you do something that a lot of people could learn from. Not only do you send your terms, but you review them with your clients over the phone. So many people just glance at paperwork and don’t take in details, which many clients can do with contracts you send. Calling their attention to these important facts will help freelancers immensely. Helps get rid of the “I didn’t see the due date” excuse. Love it!
There is no “preventing” clients from paying you late. They can and will do whatever they believe they are justified in doing. All you can really do, besides following up, is to exercise due diligence at the front end. In other words, you qualify the prospect before ever starting work for them.
The key element of qualifying a prospect before promoting them to “client” is to make an advance payment part of your acceptance of new work. In other words, your condition for beginning work for a client is that they pay you 25 to 50% payment in advance.
This practice tests several things at once that help you.
First, it tests honesty and intentions. If the prospect really doesn’t intend to ever pay for your work, they will immediately lose interest. They may try to argue with you but the fact is that someone has to start trusting someone in a relationship or nothing happens.
Secondly, it tests the role of the contact. If the contact that you have who wants the work performed has no authority to purchase services on behalf of their employer, you will create a “crisis” that will immediately show this fact. You need to be working with people who have “signing authority” for their businesses and who can get you a check cut.
Thirdly, it softens the impact if the client decides to not pay later. At least you have half of your fee.
Fourth, it commits the client. This is important. If the client has no funds at stake, then they will find it quite easy to lose interest in the project, even though you dumped your time into it. Demanding a deposit says in no uncertain terms, take you seriously.
There are a lot of really small potential customers out there, and not all of them are even listed in D&B, so running a credit check may be quite difficult on may smaller businesses.
Asking for a deposit is your “credit check”.
Don,
Awesome advice. Definitely agree with a deposit being a good substitution for a credit check. I liked your 2nd point a lot. By asking for money immediately, you’ll know who you are dealing with. This lets you see right away what kind of process you will need to go through if you are trying to get your cash. Great way to immediately vet!
About point #2 – In the past I’ve actually performed work for someone who *then* had to ask their boss to pay me, because they had no ability to sign checks or authorize work.
That’s insane Don. However, doesn’t surprise me. I wonder why someone would wait to ask their boss about expense after already receiving the service…More important question, did you get paid? If so how long did it take?
After being messed about by various clients and having to write off a substantial amount last year when a client went into administration, this is now a no-brainer for me. I don’t want clients who are poor payers.
I invoice immediately I finish each assignment. My terms are 7 days and I chase for payment, fast! Just yesterday I issued 2 invoices immediately I finished two assignments and if I haven’t been paid by the end of next week, I’ll send a chaser email. I don’t wait until month end to issue invoices. Worst case, I’ll invoice at the end of the week – “Finance Friday”.
If the work is ongoing, for example with employee handbooks, I issue stage invoices, again terms 7 days, so I’m not exposed financially.
You can set whatever payment terms you like – payable immediately, 7 days, 14 days, 30 days. I recommend you allow 7 days maximum.
With clients who’ve let me down historically, if they want me to do more work, they have to pay me upfront on a pro-forma basis.
Like Joanne, I also write professional CVs. I used to charge 50% up front, 50% on completion but now I request full payment up front. I have strong testimonials, so people know what to expect. If they don’t want to pay up front, then I simply don’t want the business.
In May this year I reluctantly afforded payment terms to a young graduate who needed an urgent CV for a super job but wanted to pay over two months. The payments never arrived – he just kept moving the goal posts. He was happy with my service but he was just an appalling payer. In the end I threatened legal action and got paid a couple of weeks ago.
If there is no dispute over the work and the amount o/s is admitted, it’s very easy now to lodge a claim online. http://www.moneyclaim.gov.uk or to submit a small claim form “N1″ which you can download online.
Additionally, it only costs around £4 to check whether your client has judgments against them – a sure sign of a bad payer. http://www.trustonline.org.uk
I don’t discount my fees – ever.
Interestingly, the tougher I’ve become, the more people have respected that I am running a real business, and the easier it’s been getting people to pay.
We’re all running businesses and the majority of us go above and beyond what’s expected of us. So we must be paid in full, promptly.
Finally, you mention that your client is a “big gun” – important to your business. If possible, you should try to get more clients and not be dependent on one big client. If you are over-dependent on an individual client, it can bring your business to its knees if they fail to pay or go bust.
Be tough! They’ll respect you for it. Meantime try to get some money on account each week until they’ve caught up with the arrears.
Good to hear you run the same terms as I do for CV writing. Anyone that doesn’t want to pay upfront is someone I don’t want to work with. Every single person who has questioned my rates (CV writing or VA work) ended up being a nightmare so I can easily spot the signs now!
I recently raised my CV prices and asked everyone to pay upfront and it didn’t my business one bit. Paying for a professional CV that secures you a high-paid job is an investment, but sadly there are always people out there who try to take advantage.
Barbara,
The way you run your receivables is awesome. Do you have ever have issues with larger clients paying you in the 7 day frame?
Hi,
I am doing freelance for last almost 5 years, never got into a situation where client was not paying or paying late, just to share my payment terms,
1st Payment : 30% to kick start the project (project wont start until I get the 30%)
2st Payment: 30% when the development reaches to half. (again i wont proceed if I don’t get)
3rd Payment: 30% when the development is done. (I will only handover the job to them once I get 30%)
4th Payment: 10%, this comes after a month when project goes live, testing, fixing etc.
I have been following this for 5 years and it worked for me.
Irman,
This is a really excellent plan (obviously, as it has worked for you for so long). How do you keep track of everything?
Hi Meredith,
I use svn to for code versioning, long back I was using VSS but then moved to svn. I have an dedicated computer on which I stored all of my project, backup etc.
I am using a software called GoodSync (http://www.goodsync.com/) to sync the changes to the production / staging sites. I found this good sync quite helpful, infact very helpful
I have developed an e-Invoicing application, which I use for my payment purpose, so I can track every single invoice given, or payment made in this small application.
I usually take that much work which I can easily handle after my full time job, and it does not disturb my personal life as well. So “One must not be greedy”
Everybody has their own style of work, I keep it very simple, I don’t take job where client are so fussy, calculative. We can’t make much out of these kind of jobs anyway.
Sounds like you have it down to science! Seriously great stuff!
I think that’s the downfall of being a freelancer we must be vigilant enough choosing employer base on their profile. Great article it helps a lot.
Very true! Thanks for stopping by!
Hi Meredith
I am a freelance photographer and I do work for the consumer and corporate/commercial industries. My usual operating system is I give a quote, the quote is accepted, i then request 50% deposit before the shoot and full payment on completion. No images are released prior to full payment is received.
I have just completed a shoot and loads of retouching for a well established designer. My image is for his client who are a very large multi million Rand company. I waived the deposit because he has been a good payer on 2 previous commissioned shoots. Now today her says the following:
“In terms of payment, I will pay you before taking the disc. You should know though that our entire industry works on a 30 day payment period from date of invoice or Statement and all photographers I use or have used work on this basis. All suppliers work with agencies like this. Remember that I only get payment after 60 days from date of statement. So, if you invoice me now, I can only invoice at the end of November and then I will get paid at the end of January. So this does count against you in a way. In the photography world, copyright subsists with the photographer until full payment of the commisioned job is received, so there is a built-in common law protection.”
My gut reaction is I don’t care about when he will be paid. I am only concerned with the product I produce and when I will be paid.
How should I approach this whole situation. Of course I would like to get more work from this source.
What to do?
Thanks.
Lisa
@lisa
Business is about trust, If you think the client can be trusted (especially returning one), you should give him a chance, with valid contract (about when to pay and how you deal with late payment, including refuse to do more work unless the previous payment is clear). Never do it with a new or untrusted client though, i had a client with bad payment history giving the same speech, and i just give him one more time to screw me