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.
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.
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.
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...
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.
What about setting the client up on an auto- draft each month? This is an assurance of payment and less hassle for your client.
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.
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
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).
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.
i think you need to sign a contrat and if its done already stick to the terms of the contract strickly
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.
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.
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.
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.
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.
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.
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.