You work hard and deserve to be paid on time. Unfortunately, we don’t live in a perfect world. More than half of small businesses in the US are paid late, reports Business Wire. 55 percent believe those delays are deliberate (when coming from large firms)! In this mini-guide, I will offers some experience-backed advice on handling late-paying clients professionally – starting with what to do if an existing client misses a payment. So, here are some tips on handling late payments without damaging your customer relationships!
Tips for Handling Late Payments from Customers
While you may be feeling the pressure of a missed payment and be tempted to blast your client on the phone, don’t. Go for a walk or do what you need to do to calm yourself down. Consider the situation objectively.
Did your client forget about the payment because of a personal problem or something similar? Even if the reason is less benign, be professional about the whole situation. Maintaining working relationships with people you don’t like is a key business skill, says the HBR.
Have a Conversation with Your Client
You have to gain clarity about the situation to be able to respond to it appropriately. The best way to do so is to have a conversation with your client. Face to face is best if you can swing it, but phone conversations are also effective. Avoid emails – written messages are easy to misinterpret, and can come back to bite you later.
Be Clear About What You Want
Rehearse your communiqué before talking to the client. Be factual and polite. Let them know you’re calling because a payment was due, and calmly inform them the deadline is passed. Keep your end goal in mind when talking to your client, and put your expectations across accordingly. “We were expecting a payment from you by the (insert date here), as we agreed previously. Is everything alright?” or similar makes for a good conversation opener.
Don’t be afraid of being firm (without being aggressive) and setting boundaries. You teach people how they treat you (and your business) with what you put up with. However, don’t go overboard. Balance is key. Unless your client is a frequent late-payee, we recommend a relaxed, professional approach. Gauge your relationship and trust levels, and proceed accordingly.
Be Open to Hearing What They Have to Say
Your client may have something to say. It’s important you listen, even if it’s not something you want to hear. Your clients are people and will behave like them. When reminded of missed payments, most people feel embarrassed and promptly agree to pay. A few may not.
You may need to negotiate with them, or even pressure them. But that’s later. Just inform them you’re expecting a payment, and give them some breathing room, if necessary.
Talk to Other People in the Company
Talking to people who are a part of the client’s company is a great way to pressure clients who keep putting off payments. If their colleagues or superiors know someone is chasing them for payments, it affects their reputation. They’re likely to pay you just to get rid of you. Furthermore, contacting multiple people gains you some much-needed attention.
Consider Offering Extra Payment Options
Sometimes clients have financial problems and you have to work with their limitations. In such cases, offering alternative payment options may speed up your payment. Many contractors offer personalized or flexible payment plans to allow clients to pay in installments. You could do the same.
Make Invoicing Smooth as Butter with Software
Invoicing is often a tedious, time-consuming process. Clients are much more likely to pay you if you make it fast, transparent, and easy. For example, you could integrate the Plaid Balance API into your invoicing (or similar productivity) app to enhance its functionality.
Your customers gain peace of mind knowing they have enough money to make payments, not to mention the lack of big overage fees. Furthermore, you can also verify in real-time whether your clients or customers have funds enough to purchase your product or service – invaluable information when you’re getting paid.
Pause Your Work
Always pause your work if the payment doesn’t come through quickly enough. You don’t want to build up a stockpile of late invoices. Inform your client (email is fine) that you’ve paused your work, with a reminder that a payment is due. This may pay you if they need the job done.
Have Your Attorney Intervene
If the client still refuses to pay up, it may be time to talk to your attorney. Typically, your attorney will advise you to send a debt collection letter. This is a more formal intimation than a missed-payment reminder. It contains more forceful language and is the precursor to legal action. You may also want to approach a debt collection agency at this juncture. Never hesitate to obtain professional advice for your business. As a business owner, there may be things that are simply out of your wheel house.
Consider Drastic Measures
You may have to take the client to court if the debt collection fails. Of course, this is a last-resort option and should be avoided – lawsuits are a headache. Sometimes, it’s better to cut your losses and learn from the experience. Not all clients (and debt-recovery attempts) are worthwhile. Listen to your attorney’s advice.
Preventing Late Payments Altogether
Prevention is better than cure. If you collect all your invoices before they are due, you will not have to worry about handling late payments. By having a well-oiled, thoughtful payment process, not only will you get paid on time, but also strengthen customer loyalty.
- Create a contract: Create a contract with payment schedules, terms, and conditions at the beginning for clients to sign.
- Ask for advances: Ask for a portion of the payment upfront. Most serious clients will agree to pay you a reasonable amount initially.
- Incentivize early payments: Figure out ways to reward early payers. A small discount on your services or a free extra product will get you paid and make customers happy.
- Use Escrow: Escrow isn’t just for real estate. Ask your clients to make a payment to an escrow account at the start of the project.
- Penalize late payments: Charge an interest rate for late payments. Make it clear to clients in the beginning (at the contract stage) they have to pay interest on payments due.
- Send reminders: Send reminders in advance of upcoming payments (you can automate this). Many clients forget to pay – reminders jog their memory.
- Do your research: Finally, always look into a client’s background before taking them on. If a potential client is a chronic late-payer, you may want to pass them on.
Tips on Handling Late Payments From Customers – Summary
If you’re going to succeed in the business world, whether as a small business owner or independent contractor, you’re going to have to learn how to wrangle payments from your clients – preferably without permanently burning bridges. Think ahead, plan carefully, and be patient for the best results. Getting paid is a skill that you will acquire with time.
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