Handling Late Payments

Why Payments Are Late

Understanding why clients pay late helps you address the root cause:

• Cash flow issues - Client's own financial problems. Although we sympathize, a customer's fiscal difficulties are their own. Avoid the temptation to adopt responsibility for their problems. If you want to be helpful to your customer, offer that as an expression of generosity, not written in a legal document.
• Forgotten invoices - Poor organization or systems. Although we sympathize, a customer's office management difficulties are their own. Good customers will appreciate being reminded. Use habits to inform whether or not you want to do work for them again in the future.
• Disputed charges - The customer may disagree about the work performed. It may be worthwhile to have a "signoff" phase before sending the invoice, to make sure everyone agrees on the work, payment terms, and amount due.
• Unclear terms - Confusion about payment expectations. Clarity is kindness. Make sure your customers have everything they need to make good decisions.
• Administrative delays - Large companies with slow processes. Sometimes this is an excuse. Sometimes it's not. A good relationship with the customer will make it easier to push through sluggish processes.

Prevention is Best

Prevent late payments before they happen:

• Clear contracts - Define the scope of work and the payment terms upfront.
• Prompt invoicing - Send invoices immediately after work is completed. Consider having a "signoff" on the deliverables, or a meeting to discuss any unfinished items, before sending the invoice.
• Professional invoices - Make your invoices clear, readable, and complete.
• Multiple payment options - Some transaction methods are easier than others. Consider asking your client what would be easier for them.
• Regular communication - Stay in touch throughout the project so that nothing catches your customer unaware.

Follow-Up Timeline

Use this professional follow-up sequence:

Day 1-3 After Due Date

Friendly Reminder
"Hi [Name], I hope you're doing well. I wanted to follow up on invoice #123 that was due on [date]. I haven't received payment, yet. Please let me know if you have any questions or if there's anything I can help with regarding payment."

Day 5-7 After Due Date

Formal Notice
"Dear [Name], Invoice #123 for $[amount] is now [X] days overdue. Please arrange payment by [new date] to avoid any late fees. If there are any issues with this invoice, please contact me immediately."

Day 10-15 After Due Date

Final Notice
"This is the final notice regarding overdue invoice #123. I still have not received payment. Please pay $[original amount plus applicable fees] before [date]. Otherwise, we will need to exercise other collection options."

Day 30+ After Due Date

Collection Action
At this point, you should seek the advice of an attorney or other legal professional to determine what action to take. As disapointing as it may be, you should also calculate whether the work it would require to collect payment will cost you more in missed clients, than it would be to just forgive the debt.

Phone Call Tips

When emails aren't working, try calling:

• Be prepared - Have invoice details ready, so that you can discuss the problem at hand, and with specfificity. Often, it's a simple misunderstanding that can be cleared up with details.
• Stay calm - Keep your tone professional and your demeanor helpful. The moment you become each other's opponents is the moment you lose the opportunity for an easy resolution.
• Listen actively - Try to understand their situation. Sometimes a truly sympathetic situation can be an opportunity for you to extend charity. Other times, a badly run company reveals that you do not what them as a client again.
• Offer solutions - Carefully consider the option of offering payment plans. It's important to distinguish between a client who is having legitimate trouble, versus a client who agreed to buy something they can't afford.
• Get commitments - Agree on specific dates for specific amounts. It can be tempting to gloss over these details to end the uncomfortable conversation, but clarity is kindness.
• Follow up in writing - Confirm any agreements in writing.
• Learn from Each Situation - As you gain experience, you will also gain intuition about the difference between a truly difficult situation that you might be willing to be flexible with, versus a business that's being run badly.

When to Compromise

Sometimes partial payment is better than no payment:

• Partial settlements - Sometimes accepting less than the full amount is cheaper than trying to get the whole invoice paid. Do the arithmetic to find out which is the case for you.
• Payment plans - Avoid joining the lending industry when that's not your line of work. There are services that can manage payment plans for you, for a client who truly needs it.
• Extended terms - Under the right circumstances, you might be willing to give more time in exchange for commitment, such as an immediate partial payment.
• Future work holds - You should always stop all work for any client who is overdue on any invoice. Not only do you want to avoid doing work for free, but you also want to avoid making the client's bill even larger.

Learning from Late Payments

Use late payment experiences to improve:

• Review your terms - Ask your clients what they find to be unclear about your terms.
• Assess your clients - Do credit checks for especially large projects.
• Improve your process - Faster invoicing and follow-up can prevent late payments before they happen.
• Consider deposits - Require upfront payments in situations where payment difficulty might be a problem.
• Fire bad clients - A client who doesn't pay is not better than not having a client. Don't do work for clients who make your life difficult.