Every freelancer and businessman wants to ensure that every job done is paid by their customers. It really bothers many contractors as they cannot be sure whether their client will pay invoices. Here are several effective ways to make sure your customers pay your bills on time.
Agree on terms and conditions of payment in advance
First and foremost, you and your customer need to have an agreement on the scope of work and payment terms. You always need to remember that every work should be paid. It means that you need to discuss all the details of your work and payment in advance before you start performing any services.
Of course, it is necessary to have a contract template that is created specifically for you and your type of business. Such contract should have such provisions as:
- scope and description of work/services;
- type of contract: hourly rate or fixed fee;
- invoicing and payment term;
- period for disputing any work or services performed;
- available payment methods.
These provisions are only minimum of what should be agreed in the contract. Keep in mind that signing a contract is the most effective and secure way that allows you to make sure that your client pays.
Moreover, you both agree in advance on the scope of work and other project details. Customers hate surprises, for instance, when you invoice incorrect sums or do a job which was not agreed previously. It would be wise to make sure that you fully understand each other in terms of the work to be performed.
Sometimes, contractors have difficulties with negotiating payment terms, as they may feel uncomfortable to discuss payment issues. So, if you have a contract template prepared by a lawyer, it could be an option.
If you make a contract with your customer, make sure that contract provisions are enforceable in your country. It relates to late penalty fees and its amount, dispute resolution procedure, etc. It is more secure to have your company incorporated in countries with developed legal system, such as the UK, Estonia, Cyprus, Singapore, Switzerland.
Request an upfront payment with new customers
If you start working with a new customer (even if the customer was referred to you by your good friend), always ask for an upfront payment or at least you can agree on payment for each separate milestone.
The same is good for projects which price estimate is large or requires you to incur additional expenses. You don’t want to lose money, so you need to agree in advance whether your customer is expected to cover your expenses beforehand.
Agree on a retainer
Sometimes, you reasonably do not know the exact budget of a project. It is a common practice that partners agree on a retainer which will go to you as a payment. Once you reach the retainer amount and it becomes apparent that you need to devote significant resources to meet your customer’s demands beyond the resources you originally expected to devote to the task, you can mutually discuss an increase in the size of the retainer for future periods.
Clearly agree on customer’s budget
If you agree on an hourly rate contract, make sure that you understand your client’s budget. If you bill an excessive amount, your customer will most probably ask to decrease your invoice or even try not to pay it. This is in both your interests to understand each other. If possible, try to provide an estimated amount for the whole project or its parts. You should always try to stick in the budget, if you both agree on budget limitations.
Negotiate payment schedule and invoice on time
Another important issue is that you need to understand when you can invoice your customer. Your contract should contain a period of invoicing, period for any invoice disputes and term for payment. Sometimes, clients ask us what is the common practice for invoicing period. The answer is that there is no common practice for it. If you invoice once every week, then you have a guarantee that you will be paid within a short time. Another option is monthly invoice, but try not to extend it. There is always a chance that your customer forgets about you if you invoice once in a year or irregularly.
Reward your clients for early payment
Some companies promise to provide a discount if a customer makes an early payment (e.g. 2% discount). However, you should always remember that it might not be an option for you, because it means that you will get a less amount for your work.
Send polite payment reminders
If you followed the above advice, but your customer still delays with the payment, then don’t worry. There is always a chance that your customer simply forgot about it or your invoice is stuck in the accounting department. This is not a reason to send angry notifications. You should be polite in sending your reminders, though any delayed payment does not mean that you also need to wait. It would be wise to remind your customer about yourself and show that your business relies on timely payments.
If necessary, provide payment options
You should try to understand why your customer delays with the payment. Probably, there is an issue with your bank or your customer simply does not have a particular account. In this case, try to be flexible and provide several payment options (wire transfer, online payment accounts with several providers, etc).
Use automatic tools for invoicing
Sometimes, you can forget to send your invoices on time. You need to understand that it is not your customer’s business to remind you about invoices. If you have such problem, you can delegate this to automatic tools specifically created for invoicing. Such instruments allow you to send professionally prepared invoices and keep your customers updated on payment due date. Above all, it sends payment reminders. So, technically it is not you who send reminders and bother your customer with notifications.
Stop working if your invoice is not paid
In certain situations, you may stop working on a project, but don’t forget to inform your client about it. Non-payment issue is not a reason to stop any further communication with your client. Try to understand the reason the client does not pay.
Follow dispute resolution procedure
This is the stage when you obviously need to ask your lawyer to start working. Your lawyer will need to review the contract with your customer and check the dispute resolution section. Further, you need to send an official notice with the demand to pay within a specific period of time. If your customer fails to pay your invoice, you are entitled to sue your customer.