Ask any freelancer or small business owner about their biggest pain points in dealing with clients, and you’ll often get the same answer: Invoices. When a client waits until the very last minute (or beyond) to pay your invoices, it can leave you watching your bank account nervously, hoping the payment arrives before your bills are due.
Should you follow up yet again? Should you charge a late fee? Which ways to accept cash flow allow you to get paid more quickly, and how can you stop this from happening again? The secret is to develop a firm hand and set clear expectations with clients while maintaining strong relationships. In this guide, we’ll talk about five important ways to take control of your small business invoicing practices and get paid more quickly.
You always want to establish key payment terms with clients in advance. These typically include, but aren’t limited to:
● How long the client has to pay invoices (usually known as Net 30/60/90 terms)
● Whether you’re billing on a project, retainer, or hourly rate
● Payment methods you accept
● Penalties for paying late or discounts for paying early
● Whether your payment requires a down payment or deposit
The preferable option is to state the terms clearly and prominently in a written contract at the beginning of the client engagement before you even begin issuing invoices. This gives clients the opportunity to talk through the terms with you, and it’s also an essential part of your case if you ever have to pursue legal action against a non-paying client.
Even if you’ve already negotiated payment terms, remember to always place key payment info like due date, payment methods, and late fee formulas on the invoice itself so clients have it close at hand. Invoice software will allow you to set up templates with this information, so you don’t have to type it on a new invoice every time.
Look at which payment methods are standard in your industry and ensure you can accept them. Getting paid is much easier when clients can use the standard payment methods they’re used to.
Depending on your line of business, this might include:
● ACH or wire transfers
● Credit or debit card payments
● Payment platforms like PayPal, Venmo, or Apple Pay
Note that certain payment methods, such as ACH transfers, take longer to clear, so be sure to budget extra time for payments if that’s the case. If you strongly prefer certain methods, you might offer discounts to clients who use those methods to pay.
Some clients might be willing to negotiate an up-front payment structure, especially if you have a strong pre-existing relationship. In such an arrangement, you’ll receive a portion of the payment before starting the work, with the rest coming once you’ve completed the task. Up-front payments can range anywhere from 20 percent to 50 percent of the payment.
For long and complex projects, you might consider negotiating a milestone payment system in your contract. These arrangements pay out a certain amount upon completion of various project tasks, such as turning in a set of deliverables or taking a website live. Milestones can be mutually beneficial to you and your client, as they create trust on both sides and allow you to walk away early if it becomes clear that a client isn’t going to pay.
If a client misses a payment, follow up with them as soon as you can. Ideally, you should contact them the next business day after the payment due date. Many popular invoicing software suites allow you to automate this function, so you can automatically send an email to late clients without the hassle of remembering to do it.
Proactively reminding clients about invoices lets them know you’re serious about enforcing payment terms. It also provides you with a paper trail demonstrating your attempts to collect, which is another essential element of building your case if you need to take a client to court.
When composing your late payment reminder, be polite but firm. Don’t assume the client is intentionally withholding payment, but don’t weaken your position with hedges like telling them they can pay whenever they get a chance. Clients who need more time to pay should formally request an extension from you.
Charging a late fee or interest on unpaid invoices is a logical next step when payments are late, and clients are unresponsive. One to two percent per month is common, although it’s worth noting that many US states have laws that cap the maximum amount of late fees you can legally charge. However, the most important part is communicating clearly clearly with the client and documenting the procedure for late payments.
So long as you have a late fee structure clearly articulated in the original contract or invoice, you’ll be in a strong position to collect. Remember, however, that you don’t have to charge late fees even if they’re in your contract — allowing grace periods or extending deadlines for clients in tough circumstances can be a big advantage in building relationships.
A positive alternative is to offer clients a discount for paying early. In many contracts and invoices, you’ll see this in a format such as “1/10 Net 30,” which denotes a one percent discount for payment within 10 days, with the final payment being due in 30 days. Even a small discount can motivate cash-conscious businesses to make sure they pay on time.
Clarity and consistency are ultimately the greatest factors in getting your invoices paid on time. Be clear from the start about how you expect to be paid, and be consistent about asking for what you’re owed. Any client worth keeping will respect this — and you’ll have far fewer sleepless nights about unpaid invoices.