No matter where your agency is in terms of maturity and size, money can be a sensitive topic. You depend on your clients to pay invoices on time, but unfortunately, it doesn’t always happen. Sometimes a client is having financial problems of their own or they simply forget to process a payment.
Dealing with an overdue payment can be stressful, and when handled poorly, it can tarnish your relationship with the client. Over my years as an agency owner, I’ve come up with some tips to prevent late payments and ensure that each invoice is paid on time, as well as steps to follow if a payment is ever overdue.
How To Prevent Late Payments
Mistakes happen, and the financial status of a client can change quickly. However, if you want to ensure that invoices are paid as timely as possible, first make sure that you work with reliable clients. Being proactive can reduce your chances of a late payment.
Here’s how to do it:
• Create a contract. Laying out payment expectations before you complete any work can ensure that everyone is on the same page. Have a contract in place that details your terms for payment, including your payment schedule and how clients can pay invoices.
• Do your research. Get to know your clients before you start working with them. Look into the validity of their company and determine how long they’ve been in business. If they’re new, ask for a deposit or for partial payment upfront.
As an agency owner, it can be tempting to take whatever business comes your way — especially when you’re just getting off the ground. But spending a bit more time to weed out unqualified customers can ensure that you’re working with the right people.
How To Handle Late-Paying Clients
Unfortunately, late-paying clients can slip through the cracks. Here are a few steps you can take in the event that a client doesn’t meet a payment due date.
• Evaluate your relationship. Before you take any further steps, look at the relationship you have with the client. If you have a long history and this is the first payment they’ve missed, you might want to take a more relaxed approach. However, if this is a new relationship and you haven’t established trust yet, it may influence the steps you choose to take. With a new client, you may want to have your guard up a bit more about late payments. You don’t want to start the relationship on the wrong foot, so you may want to send more reminders or cease working as fast as you would with a long-term client. It’s important to maintain open communication with clients at all times, so if a new client is late to pay, ask for a phone call or offer solutions, such as a payment plan, to ensure that your invoices are paid.
• Resend the invoice. Sometimes your clients just need to be reminded that the due date has come and gone. Simply resending the invoice and reminding them that it’s overdue can get your invoice paid, or they might reply to let you know whether any external issues are preventing them from paying.
• Stop any current work. If you do ongoing work for a client who’s late paying you, cease any further work until they get back in touch about the current state of their unpaid invoice. This can prevent you from having any additional late invoices in the future. If you’re at this point, let the client know before you stop working. Send them a message simply stating that any current or future work will be put on hold until you receive payment for past invoices. Sometimes this can ignite enough of a spark to get your payment processed and you can continue your work.
• Have your attorney send a letter. Choosing to escalate the situation to this step may depend on the amount on the invoice. If it’s a small amount, you may not want to send a letter or threaten to move the case to small claims court. However, if it’s a large chunk of cash, you may not be able to afford to let it slide.
Unfortunately, if a client still doesn’t pay and you don’t want to take on the attorney’s fees or costs associated with small claims court, there may not be a lot you can do. If a client still won’t pay an invoice, it’s best to cut ties and not continue the relationship.
Luckily, in my experience, most clients will provide payment or at least an update on when you can expect payment with just a follow-up or a threat to stop working.
Conclusion
Late payments happen. Fortunately, it’s usually due to miscommunication or a mistake. However, knowing how to handle a late payment is important for ensuring that your agency runs smoothly.
Put the proper steps in place to prevent late payments from happening in the first place. Talk with your clients to see what payment terms work with their needs, and keep communication open so clients can let you know if a payment might be delayed.
If a payment is late, don’t jump the gun. Send a simple follow-up or resend the invoice to remind them how much is due, and if necessary, have your attorney send a letter. If it seems like your invoice will never get paid, know when to count your losses and move on.
