You’ve done your part: You delivered the product or service. Now, it’s time for your customer to do their part: Pay the invoice.
Almost every small business owner knows the frustration of an unpaid invoice—in fact a study from Freelancer’s Union finds that more than 70 percent of freelancers have had difficulty collecting payment at some point in their career. The most common issue? The client doesn’t pay on time.
The worry is real: After all, you can’t pay your bills if your client doesn’t pay theirs. But the important thing is to not panic. Most of the time the invoice will be paid, even though you may have to work a little harder to collect.
Here are some steps you can take if your client doesn’t pay an invoice on time.
1. Did you agree to a preferred payment method up-front?
For faster payments, hold the invoice conversation right at the start, before you do the work. If it’s too late for that, don’t beat yourself up. There’s always next time.
But it can be easier to get payment if you’ve determined these two specific logistics of what your client wants and needs in an invoice.
- Who should get the invoice: Sometimes it’s the client themselves sometimes it’s the accounting department, or both. Make sure you know the procedure to expedite smoother, faster payment.
- How they like to pay. Offering your customers more payment options, such as credit card, eCheck, or direct ach bank transfer, ensures that there’s no holdup for a silly reason.
It’s an extremely common situation – a client becomes accustomed to paying for almost everything one way, only to become inconvenienced when that payment method isn’t available. If they pay for everything by credit card, and you’re asking for a check, they may not ever find the time to locate their checkbook, get a stamp, and put the check in the mail.
If your client hasn’t paid you on time, asking, “would you prefer to pay another way?” may be all it takes to get paid on-time in the future.
2. Does your invoice make it clear what your customer is paying for?
Clients are more likely to pay on time when the invoice makes what they’re paying for crystal clear. .
That’s why you want to make sure you’ve included all the information a client needs. This could include:
- Consultation time
- Hours spent on specific tasks
- Research time
- Distinct project numbers for pre-defined deliverables
- Cost of materials
While the invoice is your tool to help you get paid, for your client, the invoice is a way to answer the , “What exactly am I paying for?”
If you haven’t yet cataloged your products or services, it’s worthwhile exercise that can make everything from marketing your business to sending invoices more efficient in the future.
Also, check that your payment terms are featured in a prominent place on your invoice design. Without clear payment terms, it’s your word against theirs when an invoice is actually “late.” About one quarter of invoices don’t have a due date on them, making it harder to follow up.
You may be tempted to put “Immediate payment,” but that can be confusing to some clients.
Adding a date gives them a concrete target to meet. The most common payment term is “Net 30,” which means the recipient must pay their invoice within 30 days of the invoice date.
3. Do you have a follow up system for late invoices?
Having “the conversation” about late payments is a huge source of anxiety, especially when paying your own bills on time depend on the cash flow this late invoice represents.
However, like everything else we’ve discussed, having a system for following up on late payments can help you keep calm, and move on to your other work.
Accounting software does make following up on late payments easier, because, unlike manual systems like Word or Excel, you can sort invoices by client name or due date, and set up automatic invoice reminders for overdue payments.
Here’s an idea of the intervals and types of messages you can send to clients who haven’t paid on time.
Day 1—Payment due date
If you haven’t received the payment by the due date, check to see if they even received the bill.
Either way, send a polite email reminder mentioning that perhaps the invoice has gotten lost in the shuffle. That might be enough to jog them to remember to send it. Or, they may say “the check’s in the mail,” in which case you know payment is coming soon.
ProTip: Try sending an automated reminder a week before the invoice is due to give them a heads up!
Day 15—Two weeks late
When your payment is two weeks late, that’s when you may start feeling panicky.
That’s a good time to reach out with a polite phone call to reconfirm they have the invoice and see if they have any questions. Sometimes they neglected to tell you that there’s some specific information they need for their own system, like a PO number. Or it could be your invoice got lost in the inbox of “Carol in Accounting” who’s been on vacation. There is almost always a good reason why your invoice hasn’t been paid, so don’t be shy about asking.
Day 30—One month late
This may feel like it is bordering on rude, but that doesn’t mean you should be.
Keep calm and stay professional in your follow up.
If you have already spoken with the client, re-send the invoice, along with any new charges, and reference the conversation you had and any concrete plans they had stated to send payment. In addition to email, send it via snail mail, which might get their attention.
You can also begin assessing late fees—but this is important—only if you had first explained it in your new client onboarding.
Hitting a customer with an unexpected late fee could cause more animosity than it’s worth. However, it’s perfectly fine to state your terms for late payments right up front and then be sure to itemize them on the next bill.
At this point, you may want to dial up your persistence. Be clear that you need to be paid and make sure you’re talking to the right person. If you are dealing with the accounting department, it might be time to get your client involved again as they have a vested interest in seeing you get paid in a timely fashion so the work can go on.
And that’s because this is an ideal time frame to cease current and future work. Politely let your client know via email that you will have to stop working on current projects until the bills are current.
And remind them that any creative work belongs to you until you have been paid for it.
Day 60—Two months late
If 60 days is considerably past your invoicing terms, it’s not unreasonable to send a demand letter from your attorney, or if you don’t have an attorney, from LegalZoom; they have an online library of successful letters you can access for a small fee, or you can choose to add attorney support.
Looking further ahead, you may want to consider:
- Using an invoice factoring agency
- Sending the bill to a collections agency or…
- Writing the invoice off as bad debt and move on
None of these scenarios are ideal, but the links above can provide you with more insight in pursuing each option.
But remember – Don’t panic
Of course, this timeline represents the worst-case scenario; in most situations, all you’ll need is a simple follow up reminder email, maybe provide more payment options, and your payment will be on its way.
By proactively setting up accounting systems and processes that provide clarity and keep you protected, you’ll be able to focus more on doing the work and growing your business, and less on the administrative headache of getting paid.
This article was produced by the QuickBooks Resource Center and syndicated by MediaFeed.org.
Featured Image Credit: iStock/Kerkez.AlertMe