Posts Tagged ‘late payments’
Last week, my business made £1,180 from a customer without doing any work. All it took was for this particular customer to pay their invoices late.
I know that Late Payers are a constant worry for the majority of freelancers and small businesses. The majority of my own customers pay late. However, on the whole, my late payers are only 2 or 3 days late in making their payments – which I can live with.
But this one customer was over 80 days late in their payment, and the amount was large – very large. In fact, the original invoice was nearly £60,000 in value. As you can imagine, when the amount is so large, and with payment being so long overdue, it can lead to a lot of sleepless nights – will they pay at all? Will I have to take them to court? Will they eventually turn around with 1,000 reasons why they are not paying (delivery was not as they wanted, etc)? In short, would I ever see the money?
I had a signed contract – so was covered from that point of view. In the contract, it talked about my terms and conditions, which included my late payment penalties – so was covered there. And my online accounts system (the wonderful FreeAgent was regularly sending them chase notifications).
After the invoice was 30 days overdue, and after a lot of worry – I bit the bullet – and raised a late payment invoice for 30 days of interest (8% over the base rate – so maths = (((amount of invoice + 8.5%)/365 days) * 30 days) plus my £50 admin fee.
30 days after that, I raised another 30 days of interest and another late payment fee, and then a third late payment invoice. They now had four invoices outstanding (the original plus 3 late payment invoices)
After the third invoice, it did seem that I was wasting my time – I was calling them and was being given more and more complex reasons for the late payment (we have a new accounts system, the payment manager is on holiday, its in the next payment run) – I even started to research on Google which debt collection company would have the most success (and which would cost me the least).
And then, guess what…. they paid. There was no email or call or anything – the money just magically appeared in my company bank account. Not only did they pay the original invoice, but also the late payment invoices – so an extra £1,180 into my bank for no effort from me.
And you know what – that’s more money than I would have gained in interest in having it sit in a bank – so I am very happy.
We all suffer bad payers – but don’t give up. Chase, chase, and chase some more. When things get too much, threaten and then do it – raise that late payment invoice. Don’t put up with those late payers. And don’t wait until they pay to raise a late payment invoice – raise one a month – it acts as a reminder to pay the original invoice (and that you are serious).
As long as you have a signed contract and a clear set of terms, the law is on your side.
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.