Business
As a business owner, one thing we all have to deal with is how to collect money from clients for our products and services. Today we are discussing how you to deal with collecting money from clients, otherwise known as collections or accounts receivable or A/R. We’re going to start with how to create expectations from the very start with your clients to defining your payment terms and what to do if a client ends up not paying you at all. I’m covering what forms of communication you can utilize and how long you should wait, along with how kindness can go a long way. Let’s collect your money! What we’re talking about Creating Expectations For Your Clients Defining Your Payment Terms What Do You Do If A Client Doesn’t Pay On Time? Creating Expectations For Your Clients Creating expectations for your clients on your payment terms should start well before your first invoice is sent to them. You should set up the parameters and boundaries in your initial call, your contract and your onboarding emails, so that your client is informed and fully understands your payment expectations. You can share your payment terms during your onboarding call, your discovery call, within your workflow and in your contract. In addition to the payment terms, you should inform your client as to what your billing process is. How often will you bill? When will you bill? How long will they have to pay your invoice? Define your payment terms or how long they have to pay you from when they receive your invoice. Defining Your Payment Terms One of the biggest parts of collecting money from your clients is defining what your payment terms are. They can vary from due on receipt which means the invoice is due as soon as it is received or you could offer payment terms of 7 days, 14 days, 30 days or more. Keep in mind that if you work with large corporate clients, they might need 30 day terms due to the size of their accounting department and internal processes. When defining your payment terms, consider your own cash flow and when you need money to come in. If all of your payment terms are 30-60 days, remember that is how long you will have to wait to be paid for your services and in some cases, even longer if a client is late. In addition to payment terms, define your billing process. When will you bill your client: before, midway, after or a combination of when the work is done? What Do You Do If A Client Doesn’t Pay On Time? You’ve defined your payment terms, sent your invoice and the due date is quickly approaching, but your client hasn’t sent you a payment. What is the consequence if they go past the due date and don’t pay you according to the terms? Most often, business owners apply a late payment fee which can be a flat fee or a percentage of the invoice. There is also such a thing as a rolling late fee in which a percentage is charged after being so many days late and accrues as the days continue. The late fee is meant to be a deterrent from paying late, not to be a money making scheme for you. As a courtesy to clients, send them a reminder a day or two before the invoice is due and reiterate what the late payment policy is. Once the invoice is overdue and the late policy has been applied, send them another reminder restating the late policy to ensure that your client is aware of what’s going on. You can reset the deadline but the next due date should be a shorter time frame than your original deadline. If you still don’t receive payment, then escalate things with a phone call, but show concern that all is ok with them and their business. Come at this entire process with kindness. If payment is never received then you can either come to terms with the fact that you’ll never receive payment and let it go. You can use a private collections agency, but remember that they will take a fee of whatever they collect on your behalf, therefore you’ll never receive full payment. Collections can do damage to your client’s credit and your relationship will most likely be lost. The last option and the last resort you have is to sue your client. If you take legal action, decide if it’s worth it to you. Have you defined your payment and collection terms? LINKS MENTIONED How to Get Your Clients to Pay You On Time https://andismiles.com/2017/12/11/get-clients-to-pay-you/ How to Set Up A Killer Invoicing System So You Always Get Paid https://andismiles.com/2016/11/21/killer-invoicing-system/ Suing for Non-Payment of Services https://www.freshbooks.com/hub/payments/suing-non-payment-of-services