Chasing Down Money: 6 Strategies For Overdue Payments

June 13, 2016

Running a creative business is fun until someone is long overdue paying you! Learn 6 Strategies for chasing down overdue money


Sometimes Getting Paid Requires A Bit Of Work

As an owner of a couple of small businesses, one of my most satisfying weekly tasks is creating and sending out new invoices!

Seeing my A.R. (accounts receivable) grow lets me know that my companies are billing on a regular basis which of course, is a key component to a healthy business.

While seeing A.R. grow is great, seeing it continue to grow without checks or payments actually coming in can be very frustrating.

You’ve probably had clients over the years that are slow to pay or worse yet, make no attempt to pay. So better than most, you probably understand the problems that payment issues can have on a small business.

As we’ve discussed in previous Insights including Patrick’s excellent article on not extending credit/terms, probably the best way to not have to deal with payment issues is to make clients pay before receiving your product, but for a variety of reasons that’s not always possible.

In this Insight, I’d like to share with you 6 strategies for tracking down money & getting paid by clients who are slow to pay or worse yet, don’t communicate at all about payments.

The Deposit

Although Patrick wrote about the importance of getting a deposit prior to starting any project, I’d like to spend a moment discussing a few more important points regarding a client deposit on a project.

First, getting 25 to 50% of project fees up front, prior to commencing a project, obviously has one huge benefit – if a client is slow to pay at the completion of a project (and assuming you’ve delivered) you’re chasing down a lot less money because of the deposit.

Second, for me, a deposit request is also a litmus test for new clients.

With new clients, I will not work with them unless they’re willing to make that initial deposit.

Experience has taught me that clients who are unwilling to make a deposit are much more likely to be difficult with final payment – so why start a project that is likely to be financially problamatic?

So, regardless if you work like Patrick and require final payment prior to releasing a project or you’re like me with larger institutional clients and extend terms (credit) to those clients, having a client make a deposit is absolutely something you should require.

The Late Threshold – The Grace Period

Assuming you extend terms to your clients, what are those terms?

On Receipt? 15 Days? 30 Days?

Well, that’s up to you and not really the point of this article, but think long and hard about what terms you do extend.

Let’s say for example that you extend 30 days – the typical ‘net 30’.

Technically, at 31 days the payment is late, but is that when you should start harassing the client for payment?

Some say absolutely, but I find myself being a little more relaxed as I allow for a 5 day grace period.

I know what you’re thinking – ‘Rob, that’s just extending even more credit to a client’…

That’s true, but I know plenty of organizations that cut checks at the 29-day mark with net 30 terms, which means that there are probably a couple days of transit involved prior to me actually receiving a check.

With a 5 day grace period, I avoid potential accusatorial conversations with clients when they, in fact, have already paid and the check is in transit.

I know this a ‘loose approach’ that may not be appreciated by the strictest of you, but it’s a strategy that has served me well over the years.

With that said, until you know that a particular client always pays at 29 days or in some other tight window close to your due date, there is nothing wrong dropping them an email or phone call to check on the status of the payment.

Strategy #1 – The Accounting Email

When a client is late on payment my first step is an email that contains or requests several pieces of info:

  • When the due date was, and stating clearly the client is now late on payment.
  • A copy of the original invoice – this serves not only as a reminder (showing the due date) but as backup if for some reason the original was lost or misplaced.
  • Who is the person responsible for the payment? Often, this not the person you’re working with – knowing who the line producer or accounting contact on the client’s end is important. I ask for this information in this email.
  • A request for information on when payment will be made – including let me know the date a check will be cut, check number when cut, shipping method, etc.
  • What happens next from my end if payment is not received within the next 3 days (more on that below)

In a general sense, you probably already follow these steps, but the thing I do, that has allowed for the effectiveness of this email to go way up, is to NOT send this email from my email account.

In my experience, when clients know you and communicate with you a lot it’s usually in the context of you playing the ‘good cop’.

In other words, those conversations are usually friendly, upbeat and positive and often about the great creative work you do together.

When an email comes in from you playing ‘bad cop’ that changes the whole tenor of your communications with the client.

Suddenly, things can get tense in your creative relationship – and that’s not good for anyone.

So what I do is send the email I described from accouting@yourcompanyname.com. I’ll even generically sign it ‘Thanks, the accounting team’.

When the client receives this email, it immediately detaches you personally from the demand of your payment status.

In addition, it makes the client feel like they’re working with a larger, more organized company and to take the organization more seriously than the typical small shop.

If it wasn’t clear, sending an email from accouting@ doesn’t mean you actually have to have an actual real person sending that email – like your accountant or bookkeeper – it can be you.

Remember, this whole play for getting your money is a psychological one with the client.

Strategy #2 – Interest

Sometimes the only thing that can get clients off their butts to cut a check is the threat of being charged more money.

In all of my agreements with clients, there is a paragraph (included with all the other payment language) that states:

‘Fifteen days past payment due date, client will be also assessed a 5% interest fee compounded and billed weekly.’

A few things about this:

Why 15 days? This allows for that 5-day ‘in the mail’ grace period I mentioned, but also allows me a 10-day window to work with the client on payment before I ratchet things up a bit.

Again, this may sound loose to some of you, but before I bring things up a notch I want to make sure I’ve given diplomacy a chance.

Also, while 5% doesn’t sound like a lot, it can be because it’s compounded and billed weekly.  A 5k job can start with a $250 interest charge and that quickly can compound upwards.

For interest charges and late fees to work, they need to be agreed to before the start of a project, so as I said, I put that language in all my agreements – adapt the language for how you work.

Also don’t be soft on this – often the only things clients will react to is the threat of more money & interest fees. It’s also an added benefit of more money in your pocket for the pain factor of having to wait for payment.

It may turn out that a client tries to pay immediately under the threat of interest charges – in those cases, I have no problem dropping the interest charges (and new invoices) as the mechanism worked just like it was supposed to.

Member Content

Sorry... the rest of this content is for members only. You'll need to login or sign up to continue (we hope you do!).

Membership options
Member Login

Comments

Hundreds of Free Tutorials

Get full access to our entire library of 750+ color tutorials for an entire week!


Start Your Free Trial