Past Due: Tips for Getting Paid By Your Client

10 Sep Past Due: Tips for Getting Paid By Your Client

I’ve been in business for a few years now and, like all entrepreneurs, have experienced client payment issues from time to time. As I’ve mentioned before, cash flow can make or break your start-up, so it is imperative that you get paid for services rendered as soon as possible.

Here are a few lessons I’ve learned about ensuring you get paid for work performed:

Know who you are working for – You should not start working for anyone without having their full contact details including their full name, business name, phone number, email and company address. If they do not have a traditional company address, secure their home address. Under no circumstances should you go all Wild Wild West and show up at their house to claim your money. You simply need to secure a valid mailing address now, in case you need to serve them with legal papers in the future. You can’t sue someone you can’t find.

A Good Offense is Your Best Defense – You should never provide your services without getting at least a partial payment. Most smart entrepreneurs I know require at least a 50% payment up front and many (like my company) require a 100% payment before starting work. Some even offer a 10% discount to clients if they pay the balance upfront. This helps reduce the risk of not being paid or having to float bills while waiting for payment.

You may be tempted to waive your payment terms for potential business, but don’t. If you’re receiving a lot of feedback that your price is too steep than you can do a competitor price analysis and tweak your prices accordingly. Remember, what you charge is separate from how you bill it. Creating payment terms (when you get paid and how) will help reduce the risk of not getting paid for work you’ve completed.

Create a Statement of Work – Have your client sign a contact or statement of work (SOW) that that includes your payment terms and details the work you will perform. If you charge a fee for late payments, clearly list that within your payment terms and in your contract. This will help entice clients to pay on time as they will want to avoid the late charge and help you negate any carrying charges on your business debts and bills.

Have a Backup Payment Plan –  Require an alternate method of payment be kept on file (like a credit card number) to ensure that any balance due can be charged at the completion of the job. This gives you a backup way to secure payment if for some reason your client doesn’t submit payment on time. Make sure you clearly list your billing dates (i.e. the date you will bill the credit card if payment is not received) in your contract or statement of work agreement. You want to be clear on the actions that will will take if payment isn’t submitted by the due date.

Pick Up the Phone –  If you’ve done all the above and you still run into an issue with getting paid by a client, you shouldn’t let it drag on. If they are 7 days or more past due, give them a call and inquire about the payment delay. They could be waiting for a client to pay them or waiting for money to clear in their account. Ask when they will be able to pay. See if they can make a partial payment now and pay the balance in 14 or 30 business days. You want to try to minimize the risk by getting at least some of the money due now.

If they cannot make a payment now, make sure you identify a clear date on when they will be able to process payments. Avoid being too emotional in your communication and clearly state the facts of the situation. You want to be direct, but not burn any bridges. This can be an uncomfortable conversation and the client may even feel embarrassed by the situation. You want to reassure them that you understand delays happen and that you simply need to get an accurate date on when the payment will be submitted. Send them an email to confirm the conversation and reiterate any penalties that were agreed to in the signed contract and statement of work.

Call in the Heavy Hitters – If more than 60 days have passed and you haven’t been able to work out a re-payment plan with the client or they’ve gone MIA, then you may need to take legal action. If the amount due is $5,000 or less you can file a claim in Small Claims Court (please note the value may vary in different areas). You’ll need to provide the contact details for the client you are filing against. You’ll usually receive a hearing date within 90 days of filing.

If the amount owed to you is more than $5,000 then hiring an attorney may be your best option. Your lawyer may be able to get the client to pay by sending a notice of Intent to Sue. If that fails they can take them to court. You have to keep in mind that most lawyers charge by the hour, so you’ll need determine if the amount due to you large enough to justify the legal fees. Have an honest talk with your lawyer before fully engaging them. They may be able to help you determine if it is worth moving forward or may be able to sue for the amount due to you, plus any legal fees you’ve incurred.

Not getting paid for work you’ve performed is awful. Hopefully, by following the tips above you can reduce your risk and focus on your company and what you do best.

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