Entrepreneurs: Here's How To Make Sure You Get Paid Having a payment policy in place can help you avoid dealing with a deadbeat.
By John Rampton Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
If you're an entrepreneur-freelancer, client payments are your lifeblood. Should clients neglect to pay, business operations grind to a halt. And, if you're not getting paid, your bills will remain unpaid -- which isn't good for anybody.
Related: 5 Surefire Ways to Get Clients to Pay on Time
While the problem of deadbeat clients has been around from time immemorial, the "Freelancer Generation" -- the 53 million Americans now engaged in freelance work -- has brought the issue of missed and late payments into the limelight.
So, if you're struggling with this issue, consider the followinge 11 tips, including which systems you need to put into place to avoid non-payments and what to do when a client flat-out refuses to do the right thing.
Step 1: Set the stage to attract paying clients.
Before taking on your next customer or client, consider implementing the first two strategies below. These will help ensure you attract those clients who are most likely to pay -- and are the people who understand how you expect to be treated.
Raise your rates. Okay, so maybe this tip is a bit counterintuitive, but bear with me. You may believe you can compensate for rock-bottom rates by increased volume. But, trust me when I tell you, this strategy rarely works in the long term. Clients who truly value your services will expect to pay a fair (and sometimes premium) rate, and will be unlikely to give you trouble when it comes to making payments.
Have a payment policy in place. Having a payment policy screams "professional" to clients, and helps ensure that you and your clients are on the same page right from the outset. Your policy should cover all aspects of invoicing and collections, and explicitly lay out what's included in your rate. Specifics can include:
- How often you'll send invoices
- Payment terms and penalties for late payments
- Your rate structure: for instance, hourly, monthly, per-project, etc.
- Payment methods you'll accept (and won't accept)
- The process you'll follow for late and missed payments
Step 2: Identify deadbeat clients from the outset.
Dealing with late or missing payments can end up costing you significant time and money. So, it's always best to identify and weed out potential deadbeats before you even engage with them.
Avoid bargain hunters. You know exactly the kind of client I'm talking about. This is the guy who tries to haggle you down on your rate right from the outset, who says, "You look like the perfect fit, but you're charging 50 percent more than everyone else I've talked to." Assuming you're confident that your rates are fair, don't let these bargain hunters get you down. If they're unhappy with your rates now, think how unhappy they'll be when you send your first invoice.
Be wary of potential clients who don't "get" what you do. Comments like, "Well, I've been told we need your services, but I'm not really sure," should be a major red flag. If they're hesitant that they even need you, they'll be far more likely to argue over or even avoid payments. Stick with clients who know they need you, and know that you're the right person for the job.
Is the client hesitant to sign a contract? RUN. Any reasonable client will be more than happy to sign a contract, especially one that offers standard billing terms. If a potential client seems hesitant to sign (often revealed by the lengthy period taken to sign and return it), RUN. This can be a sign that he or she is anticipating future problems and looking for loopholes.
Get references and credit checks. Many freelancers avoid this important step for fear of appearing paranoid or distrustful. But if you're going to be working with a client for a long time -- or billing this employer for a lot of work -- it's an absolute must. Checking references can be as simple as calling up clients listed on the company website, and running client risk reports through a service like Cortera for as little as $2.50.
Related: 10 Ways to Avoid the 'Elephant in the Room': Not Getting Paid
Step 3: Collect on overdue accounts.
Despite your best efforts, there will likely come a time when a client will miss a payment deadline. How you react and respond to the situation can make a big difference.
Get in touch immediately. You may be tempted to wait several weeks to follow up with late-paying clients. However, with each passing week, your likelihood of getting paid decreases. Get in touch (preferably by phone) within a few days of the missed payment date, and politely inquire as to the client's expected time line.
After 30 days, start charging interest. Hopefully, your payment policy (see No. 2) specified your terms for overdue payments. Most freelancers begin charging interest at 30 days past the invoice date; some are even pushing for their fellow freelancers to require immediate payment (check out #NoNet30). Be sure to include your late payment fee on any subsequent invoices you send.
Continue to get in touch. It's sad but true: Some clients will need some significant "nudging" to make a payment. Continue to reach out regularly via phone and email to inquire about the status of payment. Remind the client of the payment terms and indicate the amount of interest that has accrued.
For very late payments, send a demand letter. At a certain point you'll realize that even if the client does end up paying, he or she will no longer be your client. This is when to draw up a demand letter (or have your lawyer do it), outlining the legal action you'll take if payment isn't received by a certain date. Here are some great tips and an outline for drafting your own demand letter.
Hire a collection agency. Because these agencies take a percentage of the debt they collect, this should always be your last resort . . . and should only be used for collecting on large amounts. Keep in mind that most agencies won't take your case unless the payment is at least 90 days overdue.
A last-ditch (controversial) strategy to collect from nonpaying clients
As a last resort, try this controversial but effective strategy: Publicly reach out on social media. As I said, this is controversial! While I haven't -- and likely wouldn't ever -- use this strategy, some freelancers have used it effectively as a last-ditch effort to collect, especially if the amount owed is substantial.
If your client has failed to respond despite numerous phone calls and the threat of legal action, a simple, "Your invoice is now 90 days late. Please let me know when I can expect payment" on his or her Facebook page or Twitter can be very effective. Keep in mind that this strategy -- while effective - may ultimately hurt your reputation or even result in legal action against you. Through payment research I found that after 90 days of waiting for a payment, you only have something like a 5 percent chance of getting paid.
Conclusion
Freelancing can be a tough gig, especially when your clients don't pay on time. Instead of doing revenue-generating client work, you can end up wasting hours dealing with collections. The strategies above will help you reduce your risk of taking on deadbeat clients, and give you a process for dealing with any clients that have slipped through the cracks.
Are late payments or nonpayments a serious issue for you? What steps do you take to avoid deadbeat clients and collect on overdue invoices? Share below!
Related: 12 Billing Mistakes That Make It Harder for Your Business to Get Paid
