If you’ve been in business for any amount of time, sooner or later you’re going to run into a client that isn’t paying you.
And I beg you, do not be like I was my first few years in business. Initially I was so focused on other things – being overjoyed that someone, anyone, actually bought from me – getting engrossed in providing the service – coming up with new ideas that would make the engagement even better – that I completely loss sight of the accounting side of things.
In fact, it got so bad that sometimes I even forgot to send invoices! Can you imagine – you’re hired to do the thing, you do it, and then you don’t even charge for it! Definitely not the mark of a smart business person.
So again (and this is so basic I’m sure you know it, but this is a good reminder) make sure you have a process in place in charge your clients consistently, and on time.
That on time part is huge. How would you feel if you were on the other side of the table. You go months without any type of payment demand, and then suddenly get an invoice for 3 months work. It’s not like you didn’t know you would owe the money, but honestly; being hit with a multi month invoice is just bad, very bad, business. So don’t do that!
If you have consistent, recurring monthly pricing – set your client up on a subscription model on something like Stripe; so you don’t have to fuss over producing monthly invoices. Then it all becomes automatic, and you can get that part off your brain.
Oh, you’ll still have to reconcile the payments as they come in – meaning mark them off for the appropriate client – but at least you’ll know that the billing part is happening consistently – and again, ON TIME.
The other critically important part is just that, knowing that the client has paid, and when that payment came in. Because you need to know how much money you have outstanding in unpaid invoices (the technical term is accounts receivables).
Alright, you have your billing process together – bills are going out like they’re supposed to; and you’re monitoring payments as they come in. But – there are one, or two clients that have fallen behind. What can you do?
First up – Do Not Take It Personally. And yes, this is all part of mindset. We’re all so close to our businesses (especially in the beginning) that once you’ve broken your back to do all that work, and then someone isn’t paying you – well it feels like they aren’t paying YOU – not they aren’t paying the bill from your company.
But remember – it’s not about you, it’s not personal. Sure – the outcome will definitely impact you personally because….well, because you need the money. But the client isn’t trying to do something against you personally. So remember that.
Maybe they forgot, or maybe their funds are tight and there’s a bigger problem here, or maybe this is their way of telling you they’re dissatisfied with the service they’re getting.
Sure, not paying your bill is absolutely the wrong way to send that message – but some people might. And if that’s the case, it’s all the better that you flesh out the issue vs. just continuing to do what you’re doing, and having them not like it and not say anything.
And another point – when you take that unpaid bill personally, it clouds your ability to approach the situation in a purely professional manner with the client. Because – well, because you’re annoyed. How dare they not pay their bill! At least, that’s what’ll be rattling around in the back of your head – and trust me, that will read through in your communication. So remember – do not take it personally. It’s just business. And you’ll take the appropriate steps that you need to take because again – it’s just business.
Next, look at the terms of your contract. What provisions or conditions do you have in your contract around late payments. See, as I’ve mentioned before – it’s really important that you have a good client agreement to fall back on.
Does your contract say you can charge late fees (by the way, make sure that you double check your local laws around late charges – sometimes there are caps to the amount you can charge). How about the method and timing of notifying the client that their account is in arrears. You may have a paragraph or two that says something like, at 10 days past due they will incur a late fee; and at 60 days past due they will be notified that they are in a grace period and services will be discontinued at the end of that 30 day grace period.
Now it doesn’t have to be exactly that – but whatever you (and your attorney) have outlined in the agreement – you need to know, so you can be sure you’re hitting all the right points in notifying the client.
You may also want to adjust how you handle a first time late payment vs. a chronic late payer. So for us, when someone is late paying their bill for the first time, we apply the service charge and then also apply a credit for the service charge that’s titled “Fee Waived as Per CEO”.
That way the client sees the late fee (so it reminds them that we do have late fees, and they’ll be charged for late payments); but it also shows a bit of grace because this is their first time being late. Now if they haven’t caught up by the next invoice, the late fee goes right back on and we proceed through the rest of the collection process. But I think it’s a nice touch that shows the client you’re on their side and you understand – without overly compromising on your collection process.
“… If you have consistent, recurring monthly pricing – set your client up on a subscription model on something like Stripe; so you don’t have to fuss over producing monthly invoices. Then it all becomes automatic, and you can get that part off your brain.”
When they get to 30 days past due, reach out directly to the client. Now, I know there’s nothing fun about this part. After all, who want’s to have a conversation with a client that you’re trying to impress with your work, about them not doing their part with payments. It just doesn’t feel good.
Honestly, that’s another reason I strongly suggest you engage a bookkeeper. They can follow up on outstanding payments, and communicate directly with the client.
Another up side to that is, if you want to waive any part of the collection process, the bookkeeper can always defer to a higher authority (yes, that would be you) to approve removing a late fee, or providing some alternate method of payment.
It gives you much more flexibility in designing a solution.
And speaking of flexibility – be prepared to provide alternative payment options. Make it as easy as possible for your clients to pay you. Using something like Stripe you can give them the option of eCheck, credit card or debit card, bank draft etc.
But also think beyond that. For instance, for Idomeneo, since we’re an HR company, we run payroll for our clients. So, we can offer them the option of adding our fee to their payroll runs.
Now doing something like this requires massive transparency – we have them sign an authorization and keep that on file, we still send them the monthly invoice, and they also get a copy of the payroll report showing everything that was processed and paid.
And internally, the department that runs client payrolls is completely different than the department that handles accounting and billing.
Remember, the easier and more automatic you can make it for your client to pay, the better chance you have of keeping them up to date.
If you’ve done all that, but still no progress, start taking steps to discontinue services. Now. I know that sounds super scary. What, fire a client? Well, think about it – are they really a client if they aren’t paying you?
And, I’m not saying take the step lightly – you have to carefully consider all sides.
Were they a referral, if so who referred them. Should you enlist their help – oh I don’t mean call up Bill who referred them and say ‘you know that company you referred, well they’re deadbeats”. I mean, depending on their relationship – is this person a client of Bill’s as well, or a friend or colleague. If your client is also their client, you may feel a bit more comfortable saying something like “So Bill; what payment methods have you found are easiest for this client.”
Usually, Bill will get the idea, and may come back with ‘oh yeah, sometimes we have trouble with them paying a bit late’ and then it opens up a conversation that might give you valuable insight. But even if it doesn’t, at least Bill now knows things aren’t running smoothly in the payment department. So if it gets to the point you have to terminate the relationship – it won’t come as a complete surprise to Bill.
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Once you’ve thought it through, you (and I do mean you, personally) should reach out to the client. And yes, this will probably be a difficult conversation – but remember, a client who doesn’t pay you isn’t a client.
Let them know their account (and again, this isn’t personal, on either side, so you are talking about their account; not THEM) is severely past due. And you wanted to reach out to them personally to talk about how the situation can be rectified.
A great thing to remember here is to offer them options. We’ve already talked about alternate payment options. But what about a lower priced service. Now be careful with this one because you don’t want them to simply not pay for a different service.
For us, we have a subscription service that is a very low pricepoint, and is charged to the client’s credit card monthly. Who knows, maybe their original service turned out to just be too expensive.
Well, once they pay their current balance (that’s a really important point – they have to pay what they owe – even if you work out a payment plan); you could transition them to a lower priced service. Preferably one that takes significantly less of your time – in fact, hopefully it’s fully automated (we’ll talk about automated subscription services in another episode).
But above all, remember that this conversation is to close out the issue. Whether it means them transitioning to a different service level, or you terminating services altogether – don’t think of this a one in a series of conversations – you’ll just end up going another 3 months without getting paid. No, this is the one that finalizes the solution.
If it’s a payment plan, write out the payment dates and amounts you agreed upon (and by the way, your services should be suspended until the account is current, otherwise you just keep racking up unpaid invoices). If it’s an alternate service, again write it out.
Now depending on the amount outstanding, you may want to consider using the court system to collect. If you’re thinking of going that way, definitely have a conversation with both your accountant and attorney first. You don’t want the fix to be more expensive than the problem. In fact, your accountant may advise you to simply write off the amount on your taxes.
But overall – you’re probably getting the point here – you’re going to have to cut them off. Discontinue your services for a while – or forever. And again, I know that thought is hard – but you need to make room for new clients that’ll pay what you charge, and do it on time.
You don’t have the time, or luxury to work for free. You’re building a business here, remember. You uphold your end of the bargain, and insist your clients uphold theirs.
And, if you start feeling squiggly during this whole process – just think about this…..what happens if you don’t pay your phone bill.