No doubt you love what you do, but there’s one recurring theme what it comes to running a business that consistently drains energy: late payments from clients. Sound familiar?
Let’s talk about ensuring you receive the payments you’re owed. We have five steps to guide you through this process:
- Enhance your payment terms in your standard T&Cs: By tweaking your contract’s payment terms, you can set the stage for a smoother payment process. Instead of the typical ‘net 30’ schedule, consider shortening it to ‘net 15’. This adjustment allows you to follow up sooner if payments are delayed and increases the likelihood of receiving payment before the 30-day mark. Additionally, it’s a good idea to include a late fee clause in your contract, typically ranging from 1% to 2% per month, which would be applied if invoices aren’t paid on time. Alternatively, you could entice clients with a small discount for making upfront payments. Don’t have standard terms of supply? Read this.
- Offer convenient electronic payment options: Today, many businesses are set up to make easy payments to supplier via bank transfers, BPAY or credit card. Make sure you provide all of these options. You can either absorb any related fees into your overall pricing (which we recommend) or clearly indicate the additional cost associated with these payment methods on your invoices.
- Stay vigilant with overdue invoices: Implement an accounting system that sends you alerts when an invoice becomes overdue, or even better, sends your client an automatic reminder. Most accounting packages, such as Xero and MYOB have this feature built in – turn it on! This proactive approach helps you keep track of outstanding payments. If you prefer, you can manually set reminders when you create invoices and resend the original invoice on the first day after the due date. It serves as a polite but effective reminder. For non-responsive debtors, implement a standard set of collection letters to escalate your demands as time passes.
- Communication is key: If resending invoices doesn’t elicit a response, consider picking up the phone. Initiate a conversation with your client’s contact person or, if necessary, reach out to their accounting department. Here’s a script you can use:“Hello, I’m calling on behalf of [Your Business Name] to inquire about the status of an overdue invoice. Could you assist with that? I have the invoice number and date here.” If they have the invoice, you can inquire about expediting the payment process, and offer to take their credit card details on the spot. If they don’t have the invoice, you’ll be better prepared to immediately discuss the matter with your point of contact.
- Balance patience and assertiveness: When facing payment delays, it’s essential to assess the situation. In many instances, delays arise due to administrative or communication issues. If you’re aware that your client is unable to make an immediate payment, consider proposing a payment plan. However, if your attempts to communicate go unanswered, don’t hesitate to halt your services. Send a notice informing them that you’ll resume work once payment is received – and engage a lawyer to enforce your rights!
These steps should help you navigate the payment process effectively while maintaining positive client relationships. If you have any further questions or need legal advice specific to your situation, please feel free to reach out on 1300 654 590 or email us.
The information contained in this post is current at the date of editing – 30 September 2023.