Whether you’re a freelancer working from home, a small business owner, a contractor, or anything in between, getting paid on time is always a major concern. No matter how well you plan your jobs to ensure a consistent income stream, an unpaid or overdue invoice can cause a major disruption in cash flow.
But nobody likes to play the debt collector.
Chasing down clients over unpaid invoices inevitably leads to awkward conversations at best—and bitter confrontations at worst. For this reason, some people simply give up after sending a few emails.
Unfortunately, there will always be people willing to take advantage of small organisations because they know they can get away with it. Contractors, freelancers, and small businesses don’t have debt collectors on retainer or massive legal budgets to pursue the issue should an overdue account remain unpaid for months after delivery.
There are, however, steps you can take as a small business owner to discourage your clients from making late payments and even encourage them to pay early.
Top tips to avoid late payments
1. Offer incentives for clients who pay early
Depending on your payment terms, you can easily incentivise prompt payment by offering rewards such as discounts for clients who pay before the due date.
If your payment terms dictate that payment is due 30 days after the invoice is generated, you can also include terms that offer a small discount for any payments made within 15 days.
A 5-10% discount won’t make that much of a dent in your profit margin, and even the most miserly clients will usually jump at the chance to pay slightly less than they were quoted. Incentives like this may also lead to repeat business in future.
Another way to use discount incentives to encourage early payment and repeat business is to offer a more substantial discount on future contracts for clients that pay within a certain window.
If you’re reluctant to offer discount incentives, you can offer rewards like free delivery of goods or bonus merchandise instead. Whatever your incentive is, clients are far more likely to pay on time if you give them a little something extra for doing so.
2. Charge interest on late payments
Another common but effective way to discourage late payments is to charge interest on payments made after the due date. Wherever possible, it’s good practice to give your clients a fair window to make payment.
30 days is one of the most common payment terms. However, after those 30 days are up, you are within your rights to charge interest, so long as this is stated explicitly on the invoice.
This method is particularly effective for large invoices where even a small percentage of the total amount due added to the bill will make a significant difference to the client.
For example, you are within your rights to charge 10% interest for every 30 days past due. Remember to make these terms explicit and clearly visible on your invoice so the client is aware of the extra charges they may incur if they leave their account unpaid.
3. Send payment reminders in advance of the due date
Sometimes a client will simply forget to pay you, which, while ultimately their responsibility, will only affect you. Some contractors are reluctant to send payment reminders before the due date in case it bothers the client or connotes a lack of trust. However, payment reminders are commonly used tools in every sector to ensure prompt payment is made.
This is more common when dealing with large clients who process and pay bigger quantities of invoices every day. It is not uncommon for an invoice to get misplaced or overlooked in these cases.
As long as payment reminders are worded in a friendly and professional manner, it is unlikely that the client will take any offence. They may even be grateful to you for jogging their memory.
When dealing with large clients, you may want to consider getting hold of the email address for their accounting department. Dealing directly with a client’s bookkeeper is more likely to get you results and will avoid clogging up your client’s inbox.
If you send your client a hard copy invoice, always be sure to accompany it with an email notifying them of the invoice, the amount due, and the payment terms. You can send a further reminder 10-14 days after issuing the invoice if you still haven’t received payment.
4. Offer multiple payment methods
The easier it is for the client to pay you, the less likely it is they will leave it to the last minute or forget about it entirely.
In your payment terms, you can include several different trusted payment channels that your client can use. That way, they can choose whichever one is most convenient for them.
You can accept direct bank payments, PayPal, credit or debit cards. Google Pay or even include a QR code. If your clients find it safe and secure, easy, and convenient to pay you, they will likely do so quickly.
5. Charge a deposit
It’s fairly common for freelancers and contractors to ask for a down payment that at least covers the cost of labour and materials for a job. This way, even if your client is a couple of weeks late on the remainder of the amount due, you can rest easy knowing that your overhead costs are taken care of.
If you do this, it’s a good idea to use an invoice template that states all your terms and conditions clearly. If you do this, you’ll never leave out important information about the payment arrangement and final settlement process.
Make the change to keep your cash flow flowing
In an ideal world, there would be no work hazards. You’d never need to take any kind of measure to protect yourself or your business. Or to ensure you get paid on time and in full.
Unfortunately, you will eventually need to deal with clients who forget to pay or simply try to take advantage of you as a small business owner. For this reason, it’s important to have strategies in place to either remind clients to pay or pressure them into honouring the terms of the contract.
If you wait until you have several unpaid accounts to make these changes, it will be far more difficult and stressful. Act fast and update your billing processes. You’ll save yourself time and money in the long run.
Featured image: Vector4stock/Freepik