For any business, big or small, sending out an invoice should be a joyous occasion—the crowning achievement of all the hard work that went into generating billable hours. It should be like the sweet banana treat at the end of a long day, week, or month’s labor. Unfortunately, for smaller businesses, independent contractors, and freelancers, invoicing often feels far from pleasant.
The Stress of Getting Paid
Picture this: You’ve worked tirelessly, your energy is drained, and all you want to do is complete some admin work. You tally up your time, generate an invoice, and send it off to your client. The work is done, the client is satisfied, and you have your own bills to pay. The last thing you need is to spend countless hours chasing late or non-payers.
But it happens, sometimes all too frequently. (According to Clockify, small businesses usually get paid eight days late, and since most companies in the USA are small businesses, those late payments affect more than 45% of the US workforce!)
For big businesses, a few late-paying customers might not be a major issue. They likely have an in-house team to handle these situations, working out payment plans and ensuring cash flow. However, for small businesses, delays in receiving payments can cause significant hardships.
Freelancers, such as writers, designers, programmers, and IT consultants, often face irregular cash flow due to the cyclical nature of their work. Some months are great, some are just okay, and some are downright tough. Slow payers exacerbate this situation, making it difficult to manage their own financial commitments. Freelancers often feel at the mercy of their clients’ willingness and ability to pay, leading many to tolerate late payments just to avoid losing customers. Yet, the stress of unpaid invoices remains.
What Can You Do?
For Current Customers
Once a client is late in paying, your options are limited. Legal action might not be worth it unless the amount owed is substantial. Most small businesses lack a dedicated billing team to act as a collection agency. Instead, open and honest communication is usually the best approach.
- Explain that as a small business, you rely on timely payments to remain viable and continue providing services.
- Offer a payment plan. Receiving smaller, regular payments is better than waiting for a lump sum.
- While you don’t want to threaten to withhold services, explain that you must prioritize clients who pay on time.
At some point, you’ll need to ask yourself, “Is this customer worth the hassle and stress of constantly chasing payments?” Only you can decide but remember that cutting ties may mean losing the owed money.
For New Customers
When engaging with new customers, set clear expectations upfront about your payment policies.
- Request a partial payment upfront, typically 25% to 50% of the anticipated fee. This gives the client skin in the game and provides your business with working capital.
- Inform new clients about late payment fees for balances over 30 days old. This encourages timely payments. Be consistent in applying these fees to maintain credibility.
- Conduct due diligence. Just as clients vetted you, it’s reasonable to ask for references from them to ensure they are reliable.
- Establish a preferred client rate. Outline criteria for receiving this rate, including timely payments.
The Bottom Line
Despite your best efforts, some customers may still find ways to avoid paying unless you’re willing to pursue legal action. Most small businesses and freelancers don’t have the resources for prolonged disputes. If you find yourself in this situation, sometimes it’s best to cut your losses and consider it a “lesson learned.” Implement strategies for new clients to minimize your risk of non-payment in the future. These proactive measures can pay off significantly—quite literally!
Let’s Get Creative
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