As new business owners, have you ever found yourself dealing with a glamorous, attractive client that you bend over backward to work for and then encounter a huge letdown? The client won’t pay.
Many of our clients come to Equal Legal because of a very similar problem.
I’ve seen this problem time and time again, so let me offer you a little insight into how this scenario plays out and what you can do to get invoices paid and on time.
In this article, I’ll tell you:
- Why it’s important to set boundaries around invoice fulfillment
- How to have a contract that protects you
- Six things you can do to ensure you always get paid on time
Set your own guidelines and follow them no matter what
It’s exciting when you get your first clients. Especially when they are big names in your industry. It feels like validation for your own service or product.
But, do you sometimes get a little carried away and place too much trust in your client’s process and terms?
Having your own protocol and timeline for getting paid is one of the most important practices for your business – if you want to stay in business.
Spell out exactly how you expect to get paid, and when, and outline it clearly in your contract or invoice. Then, get your client to sign off on it before you start any work.
If the client is a friend or a referral, treat them in the same professional way you treat any other client. Make it clear that you intend to get paid on time.
Make sure you have a contract that protects you
Get a contract in place in advance and use it with every client. Better yet, have this contract reviewed or drafted by a lawyer and make sure your business and assets are protected if the client rejects the finished product.
A clothing designer came to Equal Legal after she got burned by investing $200,000 of her own money (that she had to borrow) after winning a contract to produce a fashion line for a big-name shoe brand. When her shipment arrived months later from China she informed her client, but instead of a check, she received a curt email saying that her client was “exercising its right to reject the delivery.”
And the kicker is their reason: because they could. It was in the contract. The items had nothing wrong with them and were delivered according to schedule.
The designer had been so excited to be working with a big-name brand that she neglected to have a lawyer read over and negotiate the contract they sent her. The result? She had to file for bankruptcy and nearly lost her home. If only she’d known about Equal Legal back then!
She learned her lesson the hard way that it is crucial to have a lawyer review her contracts and negotiate better payment terms, and Equal Legal is helping her be better prepared next time because this is an experience she never wants to encounter again.
Set a clear and defined payment date
No ifs, buts, maybes, ‘on receipt’ or ‘within 15 days’. You set the date, discuss it with your client ahead of time and have them commit to it.
Print this date clearly on all your invoices.
Consider including penalties for late payments but make sure they are enforceable.
According to the California Supreme Court, interest charges on unpaid invoices for goods and services are legal if the right to collect interest is documented in your contract or invoice, and if the amount of interest being charged is reasonable.
Have a lawyer review your contract or invoice to see if it meets these requirements. You don’t want to waste your time and money attempting to collect late fees if they’re not written into your contract, or if the charges are not reasonably related to the actual damages you’ve suffered, because you probably won’t get them.
Deposits are your friend and a sure way to find out if your client wants to be your friend too!
Ask for 30-50% upfront before you start work. Why not? Wouldn’t you rather find out before you lose $200k that your ‘client’ isn’t serious?
Many clients are familiar with deposits and understand why you’re asking. If they really want your services, they’ll have no problem paying a deposit.
Deposits mean that if a client has paid part of the price, they’re most likely going to pay the rest in order to get what they’ve already invested in. They’re not going to reject your delivery on a whim like the big-name shoe brand from earlier. Plus, they’d have to justify blowing a large deposit to their higher-ups.
Of course, if they did, you’d already have 50% of the payment and if you’ve negotiated your contract right, you’ll have the option of getting paid for costs, even if they don’t accept your work.
This simple tactic could have saved the clothes designer from filing bankruptcy and her sick feeling whenever she sees someone walk by in the big-name shoe brand.
Yes, we accept!
By offering various payment methods to your clients, you cut down on delays and excuses. For example, set up PayPal, Venmo, check payment and Stripe. Make it easy for your client to pay you. If it’s easy for them, it’s easy for you, and in today’s tech-savvy world there’s just no excuse for you not to offer these payment methods and get invoices paid on time.
Factor the commission fee that these services charge into your pricing. Voila! Everyone’s a winner!
Take prompt action!
If your client is delaying payment that’s due, don’t do the same! Don’t waste any time listening to their excuses, reasons, justifications and far fetched stories that their online bank “doesn’t work weekends.”
Perhaps your client does have a legitimate excuse for a short delay that doesn’t cause damage to your accounting cycle, but when the excuses keep coming and changing, recognize the fact that they’re setting you up for non-payment and take quick, decisive action.
Tip: The longer you wait, the less likely you are to ever see your money.
This is what one of our clients did when she realized a supplier wasn’t going to return her deposit after failing to deliver the specified product (it works both ways).
After several ghosted emails and phone calls to the supplier demanding her deposit back, she wasted no time signing up to Equal Legal and requesting a lawyer write a demand letter to the supplier.
Within weeks our client received back her full $5k deposit and an embarrassed email from the supplier trying to save face. She got her money back and she earned respect as a professional because she wasn’t afraid to back up her demand with legal action.
Automate invoices and reminders
There are so many third-party invoice providers out there it’s hard to understand why any business doesn’t use them these days.
Automated invoices make your life easier because you don’t have to remember to send them out, they always get sent out on time and the anonymous factor prevents your client feeling harassed by you.
Hey, it’s just an email bot after all!
Use good relationship sense with clients
Get to know your client and take note of red flags.
If your client is being evasive or non-communicative before work has started, you’d better believe it’s going to be the same experience after you’ve done all the work, and that’s risky business when it comes to being paid.
As business owners we need to get paid on time to stay in business. Think about whether you’re actually better off turning work away from non-committal clients before taking a risk.
Get to know the person holding the purse strings
Is your client referring you to another person whom you’ve never heard of for billing matters, reassuring you that ‘so and so’ will pay you, or that a third party handles their accounts?
Get the contact information upfront for the person authorized to issue payment and make sure you understand the relationship between your client and this person.
Listen to your gut. If something doesn’t feel right or you’re hearing a lot of talk without your client putting their money where their mouth is, walk away or put them on the back burner until they show you the money. You’re running a business, not a hobby.
6 Takeaways that pay
- Managing relationships with your clients is in your control. Don’t let the shiny lights of a big-name blind you to their disproportionate contract terms. Have your own contract ready or have a lawyer review theirs. Be prepared to walk away.
- Set clear payment dates and consequences for delays. Send out automated reminders until they’re met and give your clients many ways to pay you.
- Deposits are your friend. Introduce them to your clients. If they don’t get along, move on.
- Don’t be afraid to take legal action. The sooner you do it, the more likely you are to be successful and the more likely you are to be respected in your industry.
- Be assertive. Stand in front of a mirror and ask yourself for payment until you can do it without blushing, looking away or finishing your sentence with a question mark. Try it, it’s empowering!
- Say thank you for timely payments and even consider giving discounts for early payment or good customers who always pay on time.
How Equal Legal can help you get paid on time
We understand that not getting paid is a big problem for businesses like yours. Our lawyers are prepared to write demand letters on your behalf, review contracts, and give you legal advice to prevent non-payment.
Being prepared legally saves you a lot of money and hassle down the line especially when being prepared costs just $68 a month. Click here to start today.
Nothing within this article is intended to be construed as, or used, in the place of legal advice.