As a business owner, getting paid timely shouldn’t be where you spend your time and energy. Unfortunately, customers aren’t always the most prompt. Obviously, if you take money up front, none of this matters. Restaurants and retail customers tend to pay at the time of the transaction. Service industries, however, have payment terms. I’ve compiled a few tips that will you with getting paid timely.
Payment Up Front
The best tip is to ask for money up front. If it’s a small amount, all of it should be due up front. However, even in larger transactions, you should still take some money up front. In my experience, I’ve found that this eliminates most of your nonpayers. Seriously. There are customers that were going to try to weasel out of paying altogether, but those people would never put any money down.
Even something like 10-25% down is sufficient. It all depends on how much you charge and how you run your business, but a small amount down eliminates most of your issues.
Written Contract with Appropriate Terms
If someone isn’t paying, it is always nice to be able to send them a copy of the contract they signed that shows what will happen if they don’t pay. A customer can dispute an oral contract, but they’d have a harder time with a written one.
Beyond just having your terms in writing, you should also include collection terms. In North Carolina, we can include that the nonpayer has to pay court costs, cost of collection, and even reasonable attorney fees. Unfortunately, NC caps those attorney fees at 15% of the outstanding balance. Still, they’re good to include.
For big contracts, you should get personal guarantees and security interests. I’m talking about contracts worth tens of thousands or more. It doesn’t make sense to get a lien on someone’s business for a couple hundred dollars. However, if there’s a chance they walk away from a contract that is 75% of your annual income, you probably want as many security clauses in place as you can. I’ve seen it and it isn’t pretty.
You don’t ever want to go to court for a contract in North Carolina because even the winner doesn’t win. At best, you’ll get 100% financially restored, but then you’ve spent a lot of hours dealing with the case. Most likely, you’ll only get partially compensated, or not at all.
Shorter Payment Terms
Want to get paid in 30 days? Great, set your terms to say the bill is due in 15 days. There are some people who are just slow at doing things. Therefore, this is for them. I have my payment terms set to 15 days, but interest and fees don’t start until 30 days. That way, slower customers get the overdue notice, but they don’t have financial consequences right away. Make sure to put this change in your contract!
Good Communication/Expectations
Honestly, the best way to prevent unpaid bills is good communication and proper expectation setting at the beginning. It is hard to not pay someone when you had the discussion in the beginning and then they stay on top of you. That’s largely how collections works, but in this case, you’re the one owed. I know some people who are just so incredibly personable that they’ve never been stiffed on a bill. That’s impressive! It is all due to the fact that they create such a great relationship with the client that the client would feel guilty if they didn’t pay.
Quality and Timely Work
Never give your clients a reason not to pay you. Some people latch onto any reason to skip out on an entire bill. If you’re late delivering the final product or something wasn’t quite right, some clients take that as permission to not pay at all. This is, of course, generally not how the law works. Occasionally, if the timing or other breach were a material aspect, the client does not have to pay at all. However, those are few and far between. Legally, they might be entitled to a discount, but you still did the work and they still have a finished product. For that, they have to pay.
Bill Them Timely to get Paid Timely
There is a clear correlation between time it takes you to bill and likelihood of getting paid. If you’re super late billing someone, it is not going to be a priority to pay you. Make sure you get your invoices out immediately when you said you would. Timely billing means getting paid timely.
Make it Easier to Pay
I kid you not, my malpractice insurance carrier still requires me to pay by check. I’m never late because I only pay quarterly, and that’s not a bill I would want to miss! My insurance is also over $6,000/year, so check kind of makes sense there. However, if you’re charging someone $50 for a service, you should have a plethora of ways to pay. If a client wants a new way to pay, you should look into it. Obviously, don’t sacrifice your values or accept very costly ways to pay. However, credit card, ACH, cash, and check should be automatic now in everyone’s business.
I recently had a customer ask if she could pay by Venmo. Seeing as how I wanted to get paid, I said yes and quickly setup a Venmo account. On the other hand, I’ve had many people ask if I accept cryptocurrency, but I’m not on that bandwagon. There are also a lot of rules about lawyers accepting cryptocurrency, so that makes it complicated.
In the end, it is up to you what payment methods you accept. You should put how you expect to get paid in the contract and make sure your customers know. If they have to pay by check, that’s something you need to let them know well in advance so they can get checks if they don’t have any.
Got any other tips for me? This is one of those struggles I would simply love to see disappear for all business owners.
Leave a Reply