How can I get paid more promptly?
Hi Community ~
I have a client who is a notoriously late payer, always with a "good excuse." The challenge is, I work with the CEO of a startup that is part of a much larger entity, and the CFO for the parent company pays all company employees and independent contractors. I've spoken with him, I've emailed him, and my client has interceded on my behalf. The situation will improve for a few months, then fall back. This is a long-term contract, a gig I really enjoy, and I invoice for the same dollar amount every month on the same day. You'd think the CFO could simply put my business in rotation for payment.
What else can I try? I don't want to fire the client, as the client is wonderful; it's the parent company CFO that's the bottleneck.
Thanks!
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Dec 24, 2014
There's a message here. If you were really that important to this customer, they wouldn't risk losing you and would pay you promptly.
I'm betting the IRS doesn't get the same run-around.
Dec 18, 2014
1. Offering a discount is one method, but it is highly problematic because most accounts payable departments will take the discount even when they are late.
2. Late fees and all terms and conditions need to be placed in your contract. It is not adversarial; it's just business and it is the only way you can get these fees if you end up having to go to court.
3. If you are having these issues, raise the fees of our services to compensate for having to wait and the time and effort it takes to collect the money due.
4. I would recommend retainer for sure, but half of the retainer to be paid up front to begin any work. Then the balance of the retainer due before the 1st of each month. If you don't receive payment by then, then notify them that you are stopping all work until the retainer for the month is paid.
5. Keep this in mind. YOU ARE NOT YOUR CLIENT'S BANK! You'll need to remind them of that. You have to remind yourself of that as well.
Dec 18, 2014
Offer better discount terms...Like 2% 10 net 30 or 1% 10th prox and see if the CFO bites...If not go to sponsor on the account and ask them to help you get your money more quickly...
Dec 18, 2014
I've recently had clients pay by direct deposit in many cases and funds are available in my account within 24 hours. Ones who pay that way are always solid and on time. I've had lots of "the check is in the mail" stories from clients who pay late or are inconsistent.
It may not be a large contract but I've found I've wasted the most time getting payments for minimal invoices and those are the ones that are the most aggravating of all.
Dec 17, 2014
What about setting the client up on an auto- draft each month? This is an assurance of payment and less hassle for your client.
Dec 17, 2014
Hi Ginger,
It's a great idea; however, this CFO has his own system and other suggested formats have been discussed and dismissed. We should be on track now, thanks to the startup president's intervention on my behalf.
Dec 17, 2014
I would consider having a contract written up that stipulates that you get paid the amount owed every month by a certain date, and try to get the CFO to sign it. Once you have something in writing, I think the CFO might take it more seriously so as not to risk potential litigation. I would also approach it in a very friendly matter, and maybe even find a way to also have there be specific deadlines in it that you have to adhere to, so that it doesn't seem one-sided, and you can pitch it as being something that protects both of you.
Dec 17, 2014
you have to decide
either this account is important enough that you can put up with this behaviour
or not...if not find the weak spot such as
do other suppliers get the same treatment-let him know you know
office politics-let the word get around so he looses face. cfo's are always on the lookout for a better job this could hurt him.
start delivering whatever you do aslo late with "the same good excuses" let the client put internal pressure
Dec 16, 2014
I would recommend keeping a deposit or retainer on file in the form of a time block, or other "prepaid" service. With the payment history, you have the justification in that their credit record is not established at this point to support billing in arrears. When the account on file reaches a minimum balance, you can request that it be replenished.
This way, instead of continually running after funds, you have an established credit policy, funds on file, and can forward time or service statements instead of payment requests.
Payment policy is always a negotiated piece of a contract, and a very important one. If a client is habitually late in paying, you have the power as the vendor to change the terms. On the other side of this coin, you have to be prepared if they say no or source an alternate vendor (who can then be the one to continuously chase after payments, while you find a more qualified client).
Dec 14, 2014
Send the invoice a couple weeks earlier and expect it on time. Set consequences if they are significantly late and stick to them. Reasonable ones that make sense and get them to realize they need to pay on time.
Dec 13, 2014
i think you need to sign a contrat and if its done already stick to the terms of the contract strickly
Dec 13, 2014
Let me start with what sounds as if I'm picking a nit, but I'm not: there's no such thing as 'more promptly.' One is either paid promptly or one is not. There are no degrees of promptly, just as there are no degrees of 'unique', of 'dead', or of 'pregnant'.
In the particular situation you describe, why not get yourself set up on 'Square' (http://www.squareup.com)? Bill the client company's credit card every month and be done with it. Yeah, it will cost you a few bucks, but those few bucks can't possibly come anywhere close to the frustration and aggravation you're feeling or the time you're wasting. Ninety-seven (or more) cents on the dollar of plastic money paid promptly trumps chasing receivables and sweating out low-liquidity situations ANY TIME. That 2% or 3% that you pay to Square is just a cost of doing business.
In addition, make SURE that you have a standard written agreement that has been vetted by a good business lawyer. If you're providing a consulting service, the relationship begins with a 'Mutual NDA.' When you and the prospect have agreed to a scope of work and fees, then you create an Engagement Letter that spells out what the deal is. The other party must sign, date, and return a copy of the signature page to you. MAKE SURE you get a front-end retainer. And if you have to make it 'evergreen'--you get paid a month in advance, well, doing that way works, too. What you're doing doesn't work. Not for a nanosecond. Change it.
Now, regarding some of the suggestions that have already been made, let me say this: No CFO worth her or his salt--and I speak as one--is going to pay interest charges. All you're going to do is cause yourself to have to reverse them after you've irritated the customer. Why do that to yourself and to the relationship w/the customer?
Similarly, a 1% discount makes zero economic sense in this hyper-low-interest-rate environment. Besides, if you make the discount effective for ten days, then many companies will pay you after that AND take the discount. That sets up a situation where you either have to butt heads with your customer to get the discount back or let them discount they took stand unchallenged. Better not to tempt them.
The following are the ways you get paid promptly:
#1. Make sure that your company's billing and invoicing processes are streamlined, efficient, accurate, and timely. If you have to ask your outside CPA firm to provide a review of internal controls on billing, invoicing, and credit-and-collections, do it. No matter how you do it, make them the best, fastest, most reliable, and most accurate processes you can. There's a ton out there on 'best practices' in these areas. Just Google them. You can't ask customers to have great payment processes if your company can't prepare accurate billings and timely invoices. Your process should include a provision that a Purchase Order # or Job Reference is REQUIRED.
#2. Remember, to enforce your claim to be paid, you have to be able to prove that what was invoiced was, in fact, ordered. That's why you need a P.O. #. Your people should make sure that the P.O. or Job Reference is on the invoice. If it's a Job Reference, noting on the Sales Order the name of the person placing the order, the date, and the TIME it was placed is crucial.
#3. Screen the creditworthiness of your customers. CHECK credit references, over and above D&B or NACM. Remember: There are some customers you CANNOT afford to have. You want to do everything you can to steer those deadbeats and PITAs to your closest competitors.
#4. With your A/R person in tow, take the A/P person of the prospective customer to lunch. Nothing fancy. Just say that you and your A/R person are wanting to learn the new customer's processes and practices for paying vendors, including who decides who gets paid when. Also, be sure to ask how it handles an invoice with payment terms of Net 10. That'll tell you a heckuva lot; even if your terms are NOT Net 10, you might want to change them to Net 10 for particular customers.
#5. Then explain how you bill (via PDF) and how often (when work is complete or any items on an order are shipped. Explain that your company's prices are 'very competitive', and then say, "Because of that, we respectfully ask to be paid within X days." Emphasize that, if your Terms are Net 30, that does NOT mean Net 45. Ask if those are likely to be acceptable to the A/P person's employer.
#6. Emphasize that your company does NOT waste its customers' or its own time sending 'Statements'. (Those are THE worst B2B billing practice on the planet. NEVER send them to business customers. NEVER.) Companies that know what they're doing pay from invoices and invoices ONLY. Statements ask the customer to audit what you should have done. If they're going to provide that service, you should pay for it. That's another reason they're a crock.
#7. Make sure your A/R person gives a business card to the A/P person. . .and gets one in return. Make sure you get cell numbers. And make sure you give the A/P person your own card w/cell number. Say, "We are here to do whatever we can to make this relationship successful for your company and for ours. If there are any hitches at our end or at yours, please don't hesitate to pick up the phone and call us promptly. We want to help."
#8. When you get back to your office, have your A/R person send the A/P person an e-mail briefly summarizing your company's understanding of 'the deal'. Ask the A/P person to make any corrections in your understanding.
#9 Finally, make sure you understand the difference between "billing" (a line function) and "invoicing" (an accounting function). This is especially crucial in construction companies, consultancies, professional-services firms, and other companies that are project-oriented. In those environments, Billing is NOT an accounting responsibility.
It doesn't hurt to find out the A/P person's birthday and send an electronic card. It also helps to send her/him a handwritten thank you note once or twice a year. It's all about building a relationship grounded in trust, honesty, and reciprocity (i.e., we deliver high-quality products/services for which we expect to be paid in accordance with the terms on our invoice). In business, relationships are everything.
Dec 13, 2014
Thank you, Warren. Most of your advice would apply to a company much larger than my entrepreneurial business, and is good for all growing concerns to know.
Dec 13, 2014
Don't offer a discount! On the contrary, add to your invoice a stipulation that clients will incur a 10% "Late Payment Fee" for...yup, late payments. This is what I now do, because of virtually the same problem you have. I wrote a very cordial letter to my late payers advising them of the change in my payment policy and then put it into effect the following month. YOU are charged fees for late payment of YOUR bills, right? Works both ways. Just make sure everyone concerned is aware of your policy change and don't be afraid to add 10% next time you're obliged to send a second invoice.
Dec 14, 2014
Depending on your location, the law may limit late "penalties" or interest, and attempting to charge more puts you in hot water legally. In my area, the limit on late interest is 1.5% per month, plus a one time late payment fee of up to $35. When I had to charge late fees, they almost never got paid. The client would eventually pay the original invoice amount and expect that ended the issue.
The "discount" for prepayment worked well. Now, there was never any real "discount". The normal invoice price just had 15% added, and that became the invoice total. The "discounted" amount for "early" payment within 15 days was 15% of the invoice (the original price). Within 16-30 days it was 10% of the invoice. At 60 days, a late fee and interest was added. At 75 days a notice was sent that the invoice would go to collections at 90 days, which it did. Worked well for the company I implemented it for. The few regular deadbeats started paying on time after the first collections experience.
Dec 16, 2014
Want to highlight Matthew's comment. In Kentucky, late payment interest is limited legally, and vendors can be sued if they charge more than the state mandated allowable rate (which is typically paltry). Some vendors respond by saying that the fee is a $ amount, but similarly, some states will convert that to a %.
Discounts are a way around this, but many clients will subtract the discount amount no matter when they pay.
Dec 18, 2014
Well, this has always worked for me way across the pond in France. I should have mentioned that I was clueless about different policies in different states/countries. As I am a one-person "company", I can charge exactly what other companies charge as late fees. I would be careful about offering a client a discount for early payment, unless you factor in the 15% into your original quote, otherwise you're giving a client one price, then adding a surcharge of 15% to it as punishment for late payment. Maybe I'm misunderstanding it, but Matthew Wren's system sounds just a bit shady to me.
Dec 30, 2014
Amen, to Sharron. Don't leave money on the table! If this company cannot manage its cash then it should not be your problem. You can have a productive discussion with the CFO by advising that there is a process breakdown and you may even be able to provide advice to improve its cash management. However I strongly suggest that you update your invoicing policy and implement a 2% penalty if there is a late payment. Remember you are not a bank and you need to be paid.
Dec 13, 2014
Discounts just to get paid are not a good idea. It will set a precedent for you and the client. You should have a contract that not only sets out interest on overdue bills but also includes a provision that, if there is litigation between the parties to enforce the agreement, the prevailing party will be awarded their legal fees and expenses. These are not usually compensable without a contract saying that they are. That means that if you are owed a few thousand dollars, it is often not worth the expense to collect. Likewise, if the client knows they will pay interest and your legal fees, they are more likely to pay. You can always waive the interest. That only means that you will get paid what you billed, which is what you want.
Dec 13, 2014
I disagree with giving discount for what you deserve JUST to get paid on time...that's a matter of respect...Best way to get paid is to set up an auto-pay that processes automatically and if that's not an option, get paid ahead of work. Instead of giving discounts, talk to him about paying upfront for few months ahead so you can allocate time on schedule and guarantee work...Ask why this is an issue and how this can be remedied, sometimes you offer options they don't care about, I bet you that giving the discount would not get you far, since it's a respect issue (unless they do have financial issues), it will only get worse as you cheapen yourself and your worth.
Never bargain your worth. That has NEVER worked to anyone's advantage. Find other ways to get paid for your time and worth.
Dec 13, 2014
Marzena,
I really appreciate your perspective on worth. That has been an ongoing issue for many of us in service professions, who give generously of our time and expertise and can undervalue our work. Initially the CFO balked at paying prior to the end of the month for which I was billing, until I explained that I ALWAYS delivered all work prior to the previous month-end. So I seriously doubt he'd be open to advance pay. I'd prefer electronic payment, which most of my other clients use, but he insists everyone be on the same (check payment) system.
Dec 14, 2014
And don't forget to give yourself a raise annually. I had a major publisher I was working for and didn't do it so they took it for grated that the price was set in stone. after several years I started moving the needle a little every year, and it was fine.
Dec 14, 2014
Excellent point, Paul! I haven't raised my rates with this client since the start, and am going to include the subject as part of our discussion.
Mar 17, 2015
Sometimes self worth means letting go of clients who cause more stress and problems than the money (which you will get paid on his term) is worth. Many large companies and agencies set up specific payments but if someone has major financial issues, perhaps Amara Rose...they simply should not be hiring you or anyone. We all want to help but let's not forget that in all this generosity there's a huge price to pay for he/she who is generous and that is lost time. I have done this in the past too many times: offered friends/family discounts, did favors...as you help others move forward and advance, make sure they don't leave you behind by balancing the barter with a fair exchange. There are ways to remedy this, they all start with you and your perspective and boundaries. I have fired clients before and my life has changed forever. Try it sometimes as sometimes $$ isn't worth the stress.
Mar 17, 2015
Hi Marzena, Thanks for your follow-up. The issue has now been resolved satisfactorily and I'm very happy to continue with this client, since, as I mentioned in the initial Q, the startup with whom I actually work is a joy, one of my favorite clients in fact, and I'm making a lot of other good contacts through them. Blessings ~
Dec 13, 2014
The way I get clients to pay me is to only give them bits and pieces of my work. I will give them the first round of drafts then to move forward they have to pay. Then after they pay I do the second round of drafts. Maybe giving them multiple deadlines within a project would work. Do part of the job and ask for the first payment. Dont proceed until you receive said payment and then proceed to the next step and then wait for payment. Then they are motivated to pay you to get the project done. I hope this makes sense but it has worked for me.
Dec 13, 2014
Hi Liz,
This is a great idea for new clients, or projects with incremental steps. However, as mentioned in my question, the person I work with does not control the pursestrings, unfortunately, so delaying deliverables to him would not influence the CFO in the least. I think the late payment fee is best bet in this scenario.
Thanks for your suggestion!
Dec 14, 2014
Oh I'm sorry it doesn't work like this. I just wanted to share with you the only method I know of to get people to pay me! I hope the late fees work for you. Best of luck!
Dec 13, 2014
You could try giving them a discount if they pay promptly, terms something like 1% 10 days, Net 30 and then add a 1 1/2% per month interest charge for late payment and start sending them invoices for the interest if they pay late and don't add the fee for late payment.
Dec 13, 2014
I really like Ray's idea. Good CFO's are all about cutting costs and being efficient and improving cash flow. This would be a great incentive to make them pay early. We're using the same technique for selling sponsorships for our tech events in Boston and New York.
Dec 30, 2014
Amara, is this engagement arranged with an agreed upon rate? If so, I have to disagree with Ray's comment. Having a 1% 10 term discount, should only be used for product and not labor. Period. Don't devalue your work...EVER... Especially if the rate has been agreed upon. I agree with others in the thread that invoicing early would help however this does not address the underlying problem. I would also suggest talking with the CFO and discuss the processes that need to be put in place so that are not delayed in payment. Think of it this way, you are NOT a bank. In fact if they are late then you should require a late fee. Obviously you cannot be the only one impacted by this. You can approach your CFO by being positive but firm. Suggest workflow changes and I recommend using workflow diagrams to identify problems that can improve the company's cash situation. Process changes should be put into writing and it should be communicated among his staff. Hope this helps.
Dec 12, 2014
I would recommend stating that unless they start paying on time, you will be forced to fire them. How late are they? 5 days? 10 days? a month? Do you have any stipulations in your contract that state if a payment is not made within a certain time frame after invoicing, the client will be billed an additional late payment fee? If not, Create that clause, notify the client, and they will know that they will start paying a fee for each late payment.
In conclusion, everyone is used to paying a fee if payment is late. A client of yours is no exception. As much as we love our clients, we can't let them take advantage of us...and they will. I have one right now that has a payment plan. She's still late! We normally never do payment plans. If someone pays late on a payment plan, there is no excuse.
She will also pay an additional fee for late payment. A second offense and she pays the entire balance in full.
Hope this helps.
Dec 13, 2014
Thanks, David. I've hesitated to add the late fee clause because it seems adversarial, but I agree with you, after 3 years of this it may be time!
Dec 14, 2014
Well, think about it. Everything we are in bed with financially has a late penalty. Car payments, mortgages, credit cards, internet, everything! Do you consider this threat of penalty for late payment on these services adversarial. Probably not. Reason being is you are on the penalty end. Now that you are the one creating the penalty, there is a different psychology behind it. On the other hand, on the penalty side, they don't think twice. Add the clause and then make sure you add the fee on their first late payment. This way they know your serious. I bet the late payments start being on time.
Dec 14, 2014
P.S. I also agree with giving discounts. This would be the equivalent to giving an employee extra money for doing their regular duties. This doesn't make any sense. Don't reward people for doing what they are suppose to do. You reward people for making a years worth of payments up front. That is when you give a slight discount. Otherwise - get your money. You deserve it and they deserve to pay it. Plain and simple.
Hi Roland,
Thanks for your comment. I'd be delighted with direct deposit, or electronic payment, and have suggested both options. CFO only uses paper checks in order to keep track since there are so many subdivisions, of which my client is one. Appreciate the good idea!