How can I prevent non-paying clients?
I am a Virtual Assistant, specializing in Inbound Marketing and Social Media. All my clients are NOT local. I have a contract new clients sign. But when it comes to payment some go "Missing In Action" and don't respond to email or phone calls when payments are late. When I have 3 clients at once doing this, it severely impacts my income. I stop working for them until payment is made. Is there a better way of ensuring clients pay their bills? They seem to think that since I am a long distance away, they can evade me.
Ask for a retainer at the beginning to cover your costs.
Hi Diane, I am the Community Manager for Business.com. How to prevent non-paying clients is one of the most common questions asked on Business.com. To address your question and other questions like yours in the community, the Business.com team recently published a guide on How to Handle Non-Paying Clients. Occasionally, no matter how many precautions you take, clients will still avoid paying you. This guide outlines how to best approach the situation in a professional way. Hope this helps!
Assuming your clients are businesses (as opposed to private individuals), another option is to work with a non-recourse factoring company (a "factor"). How this works ... a factor does commercial credit check on your customer (customer is not aware of this) and once approved, provides you with an advance against the invoice (usually 75-80%). Your customer then pays the factor in 30-60 days. Factor then forwards you the balance, less their fee (usually in the 3 to 5% range). You only get 95-97% of your invoice, but it is guaranteed, and the majority is paid within 24 hours from the date you invoice.
...I have a clause in my contracts that stipulates until a credit relationship is established with my studio a 50% deposit is required and the balance is COD.
Make sure you get a deposit of 25-33% of their bill before you start work. That way they have something invested and collecting the rest should be easier.
For your situation, I would like to say, that you have too quickly assumed that you have made a sale. Let me explain what I mean with it. When you convince something in some idea, you are "selling". Even if you don't get money, you often need to "sell your idea". When making business on distance and especially Internet based, there is lack of true human communication. People often click and pay without being aware of the actual purchase and business obligation. I am suggesting you to increase the follow-up or checks on each purchases. Further verify where are clients based and if you have a good system for debt collection. Engage yourself well into debt collection either yourself, or through attorneys or debt collection agencies. Charge the simple interest on due payments. That is the Protection part of it. But in the first place, don't allow yourself to sell without true sale. You need to look into the underlying business process for reasons why those clients purchased by action, but not by their mind, awareness and responsibility.
I have often few people signing up contract, without reading it. One part of my process is to expect the client to revert back to me with questions in regards to the contract. If not, I am contacting him back. And if client does not read the contract, the process is canceled and not pushed into signing up. I want my clients to buy truly.
Hi Diane. Depending on the type of rate, either hourly or flat rate you should try and at least collect 50% of the fees up front. Second to that , I would try and make it as easy as possible for clients to pay you, i.e have some sort of PayPal, E-commerce, wire transfer instructions handy , or align your business with a vendor who will manage that part for you like Odesk/Upwork. For clients you don't know at all, I would first try and collect the entire fee in advance until they prove creditworthy and you have a trusting working relationship. In the least it would let you negotiate 50% up front as a retainer. With unknown customers, in the very least have them sign a credit card charge authorization form at the time of purchase with all the recognized payment dates and monthly late interest fees, and have them sign it off. That will give you some confidence they are going to pay. Years ago , I learned a valuable tactic from a firm I was hiring for a decent sized project. I immediately thought they would give me some credit terms etc. What I learned I have carried with us today into difficult new client situations. Once you feel they are at the buying point, without any hesitation, just say this...."I really look forward to working with you, how do you want to pay for it , would you like me to invoice through payPal or credit card?. And stop talking then. Pause. Thats it. It stops people right in their tracks , that you have a valuable service worth paying for and you don't work with unknown clients without payment. It often leads to them paying or further serious payment discussion or terms getting negotiated. I did this tactic last year to a new customer for 8k and got them to pay for the entire 8k on their credit card right there on the phone. Now, they're one of our favourite customers, so trust and creditworthiness have been evidenced, so today I offer them terms. But with people you don't know , ask a lot of questions at the beginning to determine how serious and credible they sound, and then get right into how you work and how you get paid. You can build in guarantees or warranties in your scope of work agreement, stage milestones, proofs of concept and deliverables schedules. The more professional and organized you are in your approach helps immensely. You will be working from a position of strength by getting them to pay a large deposit or full balance in full. Every small business person goes through this, you just need to weigh the risks of signing a new unknown person/client. Never feel you can't walk away or say no from bringing someone new on board. You need to be able to do that with any unknown new customers to protect yourself and your business. Listen carefully to how they respond to your initial payment term suggestions. That may speak volumes. Hope that helps. Jeff
If I don't have a previous relationship with a client, I often ask for a retainer. I then credit that amount to my final invoice. Even if it is a small amount, it shows that the client is serious about my work.
i've been in business for around 25 years and from experience it strikes me that Steve Smith's remark on the client's attitude about perceived value strikes to the heart of things, not so much the debt collection aspect.
What is it that is lacking in the service you are providing? How can you either improve it or add it to existing goods or services? Tailer the service to the client?
Why not run a feedback survey questionnaire by the client or simply call him /her and ask what would improve value?
What I have done and it seems to be very effective is I have a 25% fee for delinquent accounts and send them a new invoice with the additional fee. I have found that when they see that clause it keeps them on track. Or when they see the revised invoice come through I get a reaction to pay and I let them off the hook. It makes me look like a nice guy. I also have a collection agency to go after them if it really gets that bad. Usually when people are not paying me long term the relationship is over,
You break up the work into milestones. typically you can break up a project into 2 to 4 parts.
As in 50% payment up front for the 1st part of work, and then they need to pay next 50%
or usually First payment up front 25% of the work, Milestone 1.
You work on Milestone 2 and they pay that 25% upon satisfaction, and no more work continues until both agree.
You can use Upwork.com as the platform to help you manage the Payment and Milestones, to ensure both sides get what they want
Ask for a retainer at the beginning of cover your costs.
I understand where you are coming from.
In my work area, I can produce the work for them, however what they receive is a "Locked" or restricted version, which is not released until payment is received. In some cases I will product a pdf copy with "Draft" all over it or at least in the main sections or i pixelate part of it so it is unusable.
THis way it is much harder for them to do anything with the material.
For me it's the only way to ensure they don't get the benefit until I do.
I would say that 95% of the time it works. After all they do want the end result, it's just that they don't want to pay for it.
A lot of great suggestions, unfortunately your type of business leaves you open for abuse unless you protect yourself.
1) I would secure a credit card service. There are many and if you do a search for "compare credit card services" you'll get a multitude of suggestions including the best 10, top ten, etc. There are new rules so ask lots of questions. I have a natural products company we just opened a physical location and did just sign up. I will try and see who we settled on and comment back to you. Also may be easy to just ask your bank. Most offer the service but I do find local banks are not the most affordable. Choose one without any investment in equipment--they are out there.
2) Develop an agreement for the client to sign and include reasonable late fees if you do allow balance forward.
3) Collection agencies sound great but are a mess to work with and I have never had much success. Instead use good practices,
4) Get payment in advance until you have a solid relationship, and then put in good restrictions.
5) Using credit cards solves most f your worries...
Diane, its been my experience that when a client starts to feel that a service they are paying for does not have the value they expected, they tend to think that they can get away with not paying. I do lots of business long distance and have never had a client not pay becasue they were in Canada and I am in So. Cal.
Here are a few 'best practices' for insuring you get paid:
1. Make sure the client understands your billing practices. Explain it to them verbally in addition to putting it in writing. Make sure they understand what they are responsible for.
2. Secure a credit card. If you are providing services long distance, this is the only practical way to secure payment. If they want to use PayPal, get a card as a back up.
3. Take a deposit in advance. Either a down payment if it;s project work or payment in advance if you bill on a monthly basis.
4. Keep your clients informed of the work you do. If it's admin, create a log that you can send so they see what you are doing for them. If it's work that produces anoutcome like blogging, socil media or SEO, provide a brief recap of what was done. Its a little extra work but if you use a template, it will make them realize exactly what they are paying for.
5. When payments are missed, follow up immediately. Try to connect in person. Its harder to hide if they are on the phone. Emails get trashed!
Remember, that dispite taking these precautions, you may get burned anyway. If you follow the 5 points above, your likely to get less burned.
Set up a basic monthly service fee for your client. They must PREPAY monthly. Ex: if I hired you today I pay my monthly charge now. Bill clients first of the month. You can always bill for add-on services monthly- not prepaid. Offer a discount for people who sign up for 6 or 12 months. Get credit card of you can so you can run the card on the first of the month. People would rather you set it up so they don't have to deal with paperwork every four weeks. Key is prepay!
Two options and they are not mutually exclusive. Actually, I'd probably do both.
1, Start taking credit cards.
2. I'd have a sincere conversation with my client before beginning work for him/her. I'd say something like this: I am a small business and I rely on dealing in good faith with my clients. I promise you that I will be responsive to your needs and never leave you hanging. In return, I'd like a promise from you that you won't leave me hanging either whether that be related to what you need or to paying my invoices in a timely manner. (Rarely will anyone balk at this. But, once you get them to agree to it, then you have a very good argument to go back to them)
Regarding the second. I make this part of my business development process because we all know that prospects go silent on us. Once I start a dialog with a prospect, usually on the first call/meeting I explain that I am a professional and will treat them like that and be very responsive to them; and in return that means that they will treat me as a professional and be responsive to me. So, if they leave me hanging or blow me off I have no problem calling them and leaving them the following voicemail "When we first engaged we each agreed to treat each other as professionals and be responsive to each other. So, please call me back regarding ..."
All these answers are great. A modification on getting paid in advance or getting a retainer is to sell various packages of your time such as 20 hours, 50 hours. When they pay for your hours in advance, they get additional discounts or bonus services.
Consider rewarding and publicizing the behavior that you want. Incorporate a loyalty program that rewards the type of clients that you want to attract.
Not sure about Canada but here in the UK we have the Late Payment Interest Act which allows you to charge interest on debts. I looked on a UK/Canada business site and found the following link which seems to contain the Canadian equivalent. My experience is that this really does discourage late payment and a reference should be in your contract docs.
If you have 3 clients at once doing this, it's time to look a little inward. It could be that you are taking on the wrong clients. It could be that they get some sort of sense that you won't enforce anything on them (and it doesn't just have to be a distance thing). Is there enough specific language in your contracts in regards to payment due dates, what happens if a payment is late (late fees, collections, etc.)? How do you check out clients before working with them or otherwise qualify them? Is there anything you've noticed that all the non-paying clients have in common that could be a red flag? Is there a certain point in the project where you get a sense that someone is going awol? Answering questions like this could definitely help you avoid situations like this in the future.
I also agree with the retainer comments everyone else so far has made, but you could also work with milestone payments, including something like a 50% deposit before you do any work at all. Then you could do 25% deposit at a certain time and 25% on completion.
Hope that helps!