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Shop confidently - 14-day no-hassle return policy
Shop confidently - 14-day no-hassle return policy
You’re doing your weekly financial check-in when you notice that your balance is lower than expected. A quick deep-dive showed that a client’s payment never went through earlier this week as anticipated. And a hop over to your CRM tool shows that the late payment emails (thank you automations!) have gone ignored all week.
Late-paying clients can be incredibly frustrating, and they can disrupt your business’s cash flow — adding unnecessary stress to your plate. Unfortunately, late payments are a common challenge many business owners face, especially when working with clients who may not be familiar with your payment policies or who are juggling financial commitments themselves.
The good news? There are several proactive strategies that you can implement to protect yourself against late payments and help ensure you collect the money you deserve.
One of the best ways to protect yourself from late payments is by requiring a retainer or deposit before you begin any work. This not only secures a financial commitment from the client but also acts as a buffer against potential delays down the road. When clients have already invested some money upfront, they’re generally more motivated to complete payments on time.
Make sure your contract clearly states the retainer amount and when it is due, as well as whether or not it is refundable. This helps to reduce the likelihood of misunderstandings and increases the likelihood of on-time payments.
Your contract is your best friend when it comes to protecting yourself from late payments. A detailed contract should outline all the payment terms — including due dates, accepted payment methods, and fees. When you set clear expectations from the start, it’s much easier to enforce those terms later if the need arises.
A few specifics that you should make sure your contract includes:
Don’t want to create your own legally binding contract? Snag one of our lawyer-drafted and peer-reviewed contract templates from our shop!
Every time a potential client comes into your world, it’s important to vet them before you get too excited and dive into working together. We know —telling someone to turn down clients? In this economy?But trust us, taking the time to look for red flags now will save you a ton of time, energy, and angst down the road.
If a client seems hesitant to sign a contract or pay a deposit, or if their social media presence indicates a lack of professionalism, it may be a sign they’re not a good fit as a client. Trust your instincts and don’t be afraid to walk away from clients who show signs of being unreliable. Remember, it’s better to pass on an opportunity than to be left chasing payments later.
A consistent and professional invoicing system is crucial for keeping payments on track. Sending clear and detailed invoices that include a breakdown of services, total amounts due, and payment terms makes it easier for clients to understand what they owe and when. It also helps establish a professional relationship where clients take their payments due seriously.
Not to mention, if you use a Client Relationship Management tool like HoneyBook or Dubsado, you’ll have the ability to easily implement the next strategy as well.
With your CRM tool, you can ensure that you establish effective communication in order to prevent misunderstandings and delays. From the beginning, set expectations for how and when you’ll communicate with clients, and make sure they understand how to reach you if they have questions about invoices or payments.
In addition, you can automate your invoicing and send out reminders when payments are due (and past due!). This reduces the manual effort you have to put in to track down payments and helps keep payments top-of-mind for your clients.
Automated reminders are a game-changer for keeping clients on track with payments. Set up reminders to be sent before the payment is due, on the due date, and if necessary, after the due date. These reminders keep the invoice top-of-mind for clients and help ensure they prioritize paying you.
And if those automated reminders are ignored, like in the example at the beginning of this post? Don’t be afraid to follow up with a more personal email or a phone call. Sometimes, a direct approach can prompt clients to take action.
The easier you make it for clients to pay, the more likely they are to do so promptly. Offering multiple payment options such as credit cards, bank transfers, Paypal, Stripe, or other online payment systems provides flexibility for clients with different preferences.
When you send over your invoice, make sure it clearly outlines all available payment options, so clients can choose the method that works best for them. The more convenient you make it, the fewer obstacles clients have, which increases the likelihood of on-time payments.
Maintaining a professional and positive relationship with your clients can go a long way in ensuring timely payments. If clients view you as a professional and approachable business owner, they’re more likely to prioritize your invoices. This also makes them feel comfortable communicating if they run into an issue, allowing you to work together to find a solution.
This doesn’t mean you need to be lenient when enforcing your payment terms, but building trust and goodwill can encourage clients to take their payment responsibilities seriously.
Despite your best efforts, there may be instances where clients still fail to pay on time. Having a plan for debt collection is essential for these situations. If reminders and follow-ups aren’t working, it may be time to send a formal demand letter. This letter should outline the amount owed, the original payment terms, and the consequences for failing to pay.
If a demand letter doesn’t resolve the issue, you may need to involve a collection agency or seek legal advice. Keep records of all communication and invoices, as this documentation will be valuable if legal action becomes necessary.
Legal action should always be a last resort, but it’s an option you may need to consider if all other strategies fail. Before proceeding, ensure you have a clear understanding of your rights and the potential costs involved. Small claims court may be an option if the amount owed is within its limits, but consult a legal professional to determine the best course of action.
Legal action can be time-consuming and costly, so weigh the pros and cons before deciding. If you’re constantly encountering non-paying clients, it may also be time to reassess your vetting process and contract terms to protect yourself better in the future.
The bottom line is that if you’re struggling with lat-paying clients, you aren’t alone. Late payments are a common challenge for small business owners, but they don’t have to disrupt your business if you’re proactive. Implementing the 10 strategies we’ve shared can minimize the risk of late payments.
Prevention and preparation are key, and if you want to make sure that your business is protected, take our Biz Quiz to get personalized recommendations on the next best step to protecting your business.
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