Want to get paid faster? These five tips could help!
When you’re running a small business it’s important to get paid quickly, but securing the cash you’re owed can sometimes be challenging. Clients may forget to pay on time - or could even refuse to pay at all - and it can be very stressful to chase them up and ask them to settle their bills. So what can you do to help ensure you’re paid quickly for the work you do? Here are some top tips!
Set a contract before you start working
Without an official document that shows the work you’ve agreed to do, how and when you’re going to get paid and what happens in the case of disagreements, it’s easy for a client to form their own assumptions about payment and even dispute what was agreed later on. So in order to prevent any misunderstanding down the line, it’s a good idea to write a contract and agree it with your client before you do any work for them. These tips and sample contract agreements from Elance will help you get started.
If you set their expectations in advance, your client will know exactly when they will be expected to pay - and they’ll be more likely to approach you to ask for an extension if they need extra time, rather than just assuming it will be OK to pay you late.
Consider asking for a deposit upfront
Asking for part of the payment upfront in the form of a deposit can be a good strategy for reducing the risk of your client withholding payment once you've completed the work. Your client may be more inclined to see the project through to the end and settle their bill, as they’ve already made a partial payment for the work - and even if they decide not to pay up the rest of what they owe, you’ll still have some return for the work you’ve done.
Alternatively, you may want to consider asking the client for the majority (or even all) of the payment upfront. This may be especially appealing if you’re working with international clients, as calling or visiting them to chase late payments can be expensive and any legal judgements made in your favour in the UK may not be enforceable in their country.
Send your invoice quickly
If you want your clients to view paying you as a high priority, then it’s a good idea to show the same urgency when it comes to sending your invoice. Take advantage of the psychological effect of recency by sending your invoice as soon as your project is completed so it’ll be fresh in your client's mind. They’ll know exactly what the invoice is for and, hopefully, will be more inclined to pay you. Wait too long and there’s a chance they’ll not immediately remember what work you completed, and may prioritise other invoices instead.
Consistently chase up unpaid invoices
If the payment date for a particular invoice comes and goes and your client hasn’t paid you, it’s time to start following up! Depending on your relationship with the customer, you might prefer to email or call them, or even mention it at your next face-to-face meeting.
However you choose to chase the invoice, don’t put it off. If you feel nervous about bringing up the topic of the unpaid invoice, these tips for handling tricky conversations with your clients about late payment should provide you with some helpful pointers.
FreeAgent’s automatic invoice reminders can help take a lot of the awkwardness out of the situation. When you send an invoice from within FreeAgent, you can set up an email reminder that FreeAgent automatically sends to the client either on the payment date, or a particular number of days afterwards.
Consider using early payment discounts and late payment penalty clauses
If you find that you’re still struggling with late payment, you may want to consider writing some early and late payment clauses into your agreements with clients.
An early payment discount is a great way to encourage clients to pay you promptly - you could offer a small discount to customers who pay you within a particular timeframe (e.g. within seven days).
For clients who don’t pay you within the period stated in the payment terms of your invoice, you might want to consider introducing a late penalty charge. You could, for example, introduce a flat fee that activates the moment your payment deadline passes and which you add to their next invoice reminder. Alternatively, you may want to charge interest on the amount that is overdue and add this monthly (or even weekly) to their bill.
Whether you implement an early payment discount or late penalty charge (or both), remember to fully explain these conditions and make them clear to your client from the outset - including them in your contract agreement if you’re using one.
That said, you should aim to be flexible where appropriate: if your client has a genuine reason for paying late it’s usually better to discuss the situation with them and come to an agreement, rather than simply piling on extra charges.