Many business owners struggle to enforce payment terms with long-term clients who consistently pay late. This can strain cash flow and damage important business relationships. However, there are effective strategies to get paid on time while maintaining positive connections with customers.
This article provides practical guidance on setting payment policies, automating reminders, and managing emotions when working with perpetually late-paying clients. The goal is to empower entrepreneurs to establish boundaries that minimize financial risk without sacrificing valuable client partnerships. With reasonable policies, open communication and some self-discipline, collecting from long-term clients doesn’t have to be a point of pain.
Payment Terms: Be Reasonable
When setting payment terms with clients, especially long-term clients, it’s important to be reasonable. Don’t set unrealistic expectations that will cause frustration on both sides. Consider what timeline realistically works for your client to pay invoices, based on their cash flow and billing cycles.
For example, net 30 days is a common payment term, allowing 30 days for payment after an invoice is received. But for some smaller businesses or startups, this may be too short. Offering net 60 or net 90 days may be more feasible. The goal is setting terms you both can live with, that won’t put undue strain on the client or slow down your own cash flow.
At the same time, resist the urge to offer extremely generous terms to clients to win their business. Net 120 days or longer can hamper your ability to stay financially healthy. Find the middle ground of what you need to operate smoothly, while giving clients adequate time to pay.
Being open and communicating clearly is key. Explain why your standard terms are what they are, but discuss if any adjustments make sense. Show that you aim to build a relationship of trust and understanding. With reasonable terms accepted upfront, you avoid difficult conversations down the road.
Payment Terms: Get a Deposit Upfront
Getting a deposit before starting work on a new project for a client can be incredibly beneficial for a few key reasons:
- It shows the client is invested in the project and motivated to move forward. If a client is reluctant or drags their feet on paying a deposit, it could signal challenges collecting payment down the road.
- A deposit gives you upfront working capital and improves cash flow, allowing you to purchase materials or reserve time and resources to complete the project. You don’t have to bear the full financial burden while waiting for the client to pay later.
- For larger or longterm projects, a deposit gives you some payment security in case the client’s circumstances change. You have less financial risk if the project ends up getting delayed, put on hold, or cancelled altogether.
- Psychologically, it feels better and is less stressful having at least a portion of the project payment secured upfront before you start investing significant time and energy.
- Having a deposit requirement screens out nonserious clients who aren’t fully committed to hiring you and paying your rates.
- You can adjust the deposit amount based on project size and client history. Asking for 10-20% upfront is reasonable for most engagements.
Getting a deposit upfront shows your clients that you are running a professional business that values clear agreements and fair terms. It’s a best practice that benefits both you and the client by setting clear expectations, and it shouldn’t deter great clients who value your work.
Payment Terms: Communicate Clearly
Clearly outlining payment terms in your contracts and proposals is one of the best ways to avoid payment issues down the line. Be very specific about:
- When invoices will be sent
- When payment is due (e.g. net 15, net 30 etc.)
- Your late fee policy – when late fees apply and how much
- Your payment methods – do you accept checks, bank transfers, credit cards etc.
Make sure these terms are easy to find and written in clear, simple language. Avoid industry jargon and legalize.
Specify if there are different terms for different services. For example, deposits for large projects, or shorter payment terms for retainers.
Get signoff on your terms before work begins. Have clients initial the payment section so they can’t claim later they didn’t see or understand.
Sending reminders is still important, but clear terms remove any ambiguity if clients pay late. You have clear recourse to uphold your policies.
Setting these expectations upfront ensures you get paid for the work you do in a timely manner. It also shows clients you run a professional business with boundaries.
Break Up Long Projects
When working on a large, long-term project with a client, it’s recommended to break up the project into multiple smaller projects or milestones. This allows you to get paid incrementally as the work progresses, rather than waiting until the very end for one large payment.
Some tips for breaking up projects:
- Discuss payment milestones upfront when scoping the project. Come to an agreement with the client on logical stages or deliverables to base invoicing on. This sets clear expectations.
- Tie payments to project milestones or deliverable due dates in the contract. This makes the payment schedule definitive.
- Aim to invoice every 24 weeks if possible. This prevents you from doing too much unpaid work upfront.
- Make sure milestones represent meaningful chunks of work and advance the project. Don’t just divide arbitrarily.
- Have a completion criteria for each milestone to establish what must be done for that payment.
- Send an invoice upon completion of each milestone before starting the next.
Breaking up payments limits your financial risk and helps maintain positive cash flow. You get compensated regularly for your progress rather than waiting on one lump sum. Just be sure milestones align logically with the project plan.
Set Reminders
Technology can be incredibly helpful when it comes to getting paid on time. Setting up automatic payment reminders takes the emotion and effort out of having to remember and manually send invoice reminders.
Most accounting or invoicing software like QuickBooks and FreshBooks allow you to setup automatic payment reminders. You can specify how many days before the due date you want the reminder to be sent out (e.g. send a reminder 7 days before the due date). The system will automatically generate and send a payment reminder to the client on the date specified.
Some things to keep in mind when setting up reminders:
- Make sure the reminders are polite and professional in tone. You don’t want them to sound accusatory.
- Customize reminders for each client if needed. For larger, more reliable clients you may only need a single reminder. For smaller or inconsistent clients, consider doing multiple reminders leading up to the due date.
- Reminders should specify the original invoice number, amount owed, and due date.
- You may want to escalate the seriousness of the reminders the closer it gets to the due date (e.g. add “URGENT REMINDER” in the email subject line within 3 days of due date).
- Consider following up any automated reminders with a personal phone call as well for your most problematic accounts. The human touch can help.
Automatic reminders are a great way to systemize your collections process. Just set it and forget it. The technology does the legwork for you, taking the emotion and effort out of payment collections. This prevents you from having to hound clients personally for missed payments.
Be Cautious with Repeat Offenders
When working with clients who have a history of late payments or nonpayment, it’s reasonable to take some extra precautions to protect yourself and your business. However, you don’t necessarily have to cut ties with these clients altogether.
First, look at the client’s payment history objectively. How frequently are they late with payments? How long do they take to pay invoices on average? Look at trends over the course of your relationship.
For clients who are consistently 30, 60, or 90 days late, you may want to require partial or full payment upfront before beginning new projects. This reduces your risk exposure. You can explain this policy as needing to align with your own vendors’ and contractors’ payment terms.
Also consider providing a payment schedule or installment plan, whereby the client pays portions of the total fee at set milestones. This can help mitigate the strain of a large outstanding balance, and lets you stop work if payments fall behind until caught up.
Communication is key. Discuss potential changes to payment terms openly, explaining why it’s necessary for the health and sustainability of your business. If the client is unable or unwilling to agree to revised terms, then it may indeed be time to part ways.
With reasonable caution and clear boundaries, you can often continue working with long-term yet chronically late clients. The key is protecting your business financially while also maintaining positive relationships.
Don’t Take it Personally
Having a client consistently pay you late can feel very personal, especially when you’ve put in long hours and it seems like they don’t value your work. However, it’s important to remember that their late payments are usually not about you.
Most of the time, late payments are due to disorganization, forgetfulness, or cash flow problems on the client’s end. While frustrating, it’s not meant as a personal slight against you or your business. Try to separate your self-worth from your clients’ payment reliability. You provide value through your services – that doesn’t change based on when you receive payment.
When a client pays late, don’t immediately assume they don’t appreciate you or are purposefully disrespecting you. Oftentimes it’s due to circumstances outside of your control. Maintain professionalism and give them the benefit of the doubt.
Set up structures like payment reminders and clear terms so payments happen on time. If a client still consistently pays late, you may need to stop working with them. But try not to take it as a personal affront to your business or self-worth. Their internal processes likely need improvement.
Focus on the relationships and value you provide, not just the transactions. This will help insulate your self-esteem and mental health from the ups and downs of client payments. Your worth isn’t defined by someone else’s organizational skills.
Have a Clear Process
Having a clear, standardized process for following up on late payments is crucial to maintaining positive ongoing relationships with clients. First, be proactive by clearly communicating your payment terms and timeline expectations upfront before starting any new projects. Send polite payment reminders as due dates approach.
If an invoice becomes past due, immediately follow up with a friendly email or call. Don’t assume the client is purposely avoiding payment. There may be an oversight, mismatch in records, or delay on their end in processing the payment. Give them the benefit of the doubt and politely inquire about the status of the payment.
If you don’t receive a response after the initial follow up, send a formal late notice stipulating the amount past due and applicable late fees per your original agreement. Be matter-of-fact without sounding accusatory.
At the same time, refrain from taking on additional work with the client until the outstanding balance is paid. This prevents placing yourself in a difficult financial position.
As a last resort, you may need to halt work, restrict access to any deliverables, or pursue formal collections. However, try to avoid severing ties unless the client clearly intends not to pay. With open communication and a standardized process, many payment issues can be resolved while preserving the business relationship long-term.
Conclusion
When working with long-term clients, it’s important to have clear processes and boundaries in place to avoid payment issues. However, client relationships are complex, so be reasonable and don’t take things personally.
Here are some key takeaways:
- Set up the engagement properly by getting a deposit and clearly communicating payment terms upfront. Break longer projects into multiple payments.
- Use technology like automated reminders to take the emotion out of payment collection. But stay engaged with your client’s situation.
- Learn from past issues but don’t entirely avoid clients with poor payment histories. Have an open conversation about improving the relationship.
- Keep perspective. Your clients are human too and may be going through tough times. Be understanding but maintain your boundaries.
- Don’t bottle up emotions. Talk to the client respectfully if you feel overwhelmed or mistreated.
With clear processes, open communication and empathy, you can maintain strong relationships with clients through inevitable ups and downs. The goal is to get paid fairly for your work while preserving trust on both sides.