Posts Tagged ‘delayed payment’

Late payers can kill your company.   There is nothing worse than having completed work, and having to nag, chase and threaten a client in order for them to pay their bills.  Whilst they sit back withholding your money, your own bank balance reduces and panic can set in.

There is lots of advice available on the web about what to do about late payers for Freelancers, Contractors and Small Business.  I myself have talked before about various ways of dealing with late payers.   But a lot of this advice is not being honest about the real world, and how business really happens.   So let’s all put aside the make believe situations, and talk about what you can REALLY do about late payers.

Do you still want them as a customer?

Everything boils down to this question.   Once they pay that outstanding bill, do you still want them as a customer for future work?   If the answer is No, then all the options are open to you because the relationship is already damaged, so it’s hard to make it any worse.  Once you have decided the relationship is over – you are free to send nasty emails, make nasty calls, and even turn it over to legal professionals to send them threatening letters.

BUT, if you intend to keep them as a customer, and there is a real chance of more work, and you don’t want to ruin the relationship, then in a REAL world, your hands are somewhat tied.

This decision even extends to the pre-emptive measures that are advised.   Tighter payment terms, full payment up front, payment on delivery – all of these options sound great – right up to the moment you are in the sales negotiation.    When you are struggling to land a new customer and a prospect is willing to award you the work but only if you agree to their standard 100 day payment terms – are you really going to say no?  Really?

What you can Really Do

So that’s assume we work in a real world full of recession, tightening of belts and late paying customers.   What are some of the options that you can do if you don’t want to kill the relationship and the prospect of any future work?

Late Payment Fees – This is my method of dealing with late payers.   When somebody is late, I give them a sting through an invoice for an ‘administration’ fee.  I make a small bit of money out of it, and they get nudged into paying the original bill.  If push comes to shove, you can always cancel the late payment charge to keep the relationship sweet for future work.
Money Up Front – A lot of customers will reject this idea – but it comes down to negotiation.  Where a customer is always late, you could threaten to start raising Pro-forma invoices which would need to be settled before work is started.  Full payment up front is one extreme of the payment cycle, with late payment after the deliver as the other.  So you have a wide width for negotiation for future work with an agreed percentage (10%, 30%, 50% or 75%) up front and the rest after delivery.
Put them on STOP – If they want additional work, you can put them on stop – which means that you are not allowed to do any more work for them until they pay.   I have a mean person appointed in my company (a person picked at random) who I can blame for the decision.  Putting them on stop and not being allowed to provide support or that new development is never my decision – no, I was instructed to stop work by Jo Blogs (who is not available and won’t discuss the situation whilst money is outstanding) – sorry.
Extended Payment Terms – The bigger the customer, the more power they will use against you.  I have one multinational client which sent all suppliers (including myself) a letter 3 years ago which said they were rejecting all supplier terms and replacing them with their own 90 day terms.  I had the choice to take it or leave it.  Guess what…. They provided me a fair chunk of work – so I took it.   In my situation, there was no room for negotiation, but in a real world, payment terms could be reduced for late payers through negotiation.
Check your customer history – For new customers, don’t forget you can do credit checks.  At the very least, it is worth Googling “Their Co Name Late Payment” or “Their Co Name Accounts” or “Their Co Name supplier problems” to see if anybody else is talking about them being a problem payer.   If an existing customer suddenly starts making slow payments, it is worth doing this for your existing relationships to see if anything has changed.
Protecting Yourself with a contract – When push comes to shove, you can only threaten your customer with what is in your contract.  So make sure your payment terms, late fees, the right to alter the terms and ownership rights are clearly detailed.
Resign to chasing forever – But at the end of the day, if they are an existing customer and you want the future work, you may not have any other option than to resign yourself that they have the final decision on when they will pay you, and that you just have to keep chasing without turning nasty in order to keep the relationship sweet.