"Prevention is better than cure" explains Emily Coltman FCA, Chief Accountant at FreeAgent, and we'd agree. Doing everything in your power to avoid late payments is always better than having to deal with late payments.
Whilst it's not your job to fix your client's internal accounting and payment processes (unless it is, and then, go fix it), there are lots of things you can do to remove as many possible excuses for the invoice to become overdue.
"Agree payment terms with your customer before you do any work, make sure they’ve seen, read and signed your payment terms and make it as easy as possible for customers to pay you, and if your customer is late with a staged payment, stop working on their project until they cough up!"
Here are our ten suggestions for laying the ground-work for never having to deal with a late payment:
- Make sure you have a clear scope of work agreed with acceptance criteria - getting things in writing is essential, as is getting signed off when they're delivered.
- Get your payment terms and contact details and on the system upfront, before you even start work.
- Check the businesses' payment reputation and terms before you sign a contract - ask others within your community if they've worked with the business, or for larger organisations, check the Small Business Commissioner's website.
- Reduce your payment terms to 14 days, or increase the frequency of your invoicing, i.e. weekly - it's better to invoice sooner, so at the very least, you'll receive the money sooner.
- Consider an upfront deposit to start work for longer-term or larger value projects, and break the project into phases where signoff can be provided as you go - if they're not willing to pay a portion upfront, what might this say about their behaviours later?
- Put regular check-ins to make sure you're on track for acceptance, so there's no debate on delivery - address issues early on.
- Confirm acceptance of the invoice within 24 hours, use read-receipts or email tracking, and follow up with a call if you've not heard back.
- Invest in a tool which automates invoice reminders, taking some of the headaches out of chasing, and send a note before the invoice is due as well as after. Many invoicing platforms do this for you, such as Freeagent.
- Have a defined process in place for starting work with a new client, and dealing with invoicing, reminders and remittance - so you can reduce the mental load of going through the process each time.
- If you've previously worked with a client who was a late payer, consider whether you'd be willing to work with that same client again.
Emily concludes:
"If your customer persistently pays late or argues about a bill, are they really the kind of customer your business needs? Lots of small business owners think they’ve got no choice about who they accept as customers - yes you do - your business, your choice!"
