by Tumi Frazier, founder of Tumi Frazier International
One of the biggest challenges facing entrepreneurs and SME’s alike is how to handle clients who pay late or do not pay at all. So, how do you ensure that you get paid for the services you render to your clients?
When do you draw a line between preserving the relationship and risking a big fallout by taking things further to collect an outstanding payment? Furthermore, if an invoice is overdue, how should you address it? Especially if you still value the relationship and want to work with the company again. At what point do you need to involve a lawyer?
Firstly, the best and the most sensible way to ensure you get paid is to work only for reputable clients so, it’s important to vet who you do business with. Despite your best efforts, there may be times when a client (including a reputable one) misses a payment deadline. How you deal with the situation makes a huge difference.
Here are a few points to consider:
1. Payment Policy and Contract
Have a contract or payment policy in place that you discuss with your clients right from the onset. The policy should cover all aspects of invoicing and collections, and explicitly lay out what is included in your rate. This can include:
- Payment terms and penalties for late payments
- Your rate structure: for instance, upfront retainer, hourly, monthly, per-project, etc.
- Payment methods such as electronic, etc.
- The process you'll follow for outstanding payments
Ensure that your invoices are accurate and clearly state when payment is due, as well as any penalties for late payment. Specify any discounts, such as discounts for payment in 7 or 15 days. Make use of tools and systems to automate the process for efficiencies.
3. Understand your client’s payment cycles
This information is important so you can get the invoices out to clients on time for their payment cycle. Some clients may process payments once a month while others may pay twice a month.
4. Charge an upfront Retainer
Get as much money up front as possible before starting any project. A 50% retainer of the estimated fee is usually acceptable in many industries. Consider splitting payments into smaller payments for different phases and project deliverables on larger projects. This minimizes the risk to your cash flow should a client put a project on hold for whatever reason.
5. Finance Contact
Make sure you have the name and contact details of the person in Accounts, this way you can contact them directly should there be any delays.
6. Follow up
Call your client within a few days of the missed payment date, and politely inquire about the payment.
7. Be firm
If you still don’t have payment after the first call, email the client but be firm this time, without being rude. Escalate the situation to decision makers if necessary. If the client becomes aggressive or completely unreasonable, let your lawyer handle the situation.
8. Take legal action or accept the loss
If you still don’t get paid, you have a choice to make. Weigh up the costs involved before you proceed. In some cases, it may be better to write off the client’s debt as bad debt rather than pay for legal action. In others, it may be worth pursuing legal action.
Tumi Frazier is a South African entrepreneur, professional speaker, author, TV personality, consultant, and founder of Tumi Frazier International, Tumi Leadership Academy, and Tumi Foundation. Tumi is an internationally acclaimed Leadership and Change Management expert who has worked with high profile clients and organizations across Africa, United States and Europe. Tumi has authored 4 books: Courageous Stories of Inspiration; In the Midst of the Storm; Stepping Stones to Success; and Your Moment. Follow Tumi Twitter | LinkedIn
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