If there’s one thing that every single freelancer, startup or even an established business complains about without a doubt, it’s about never getting paid on time. Clients will chase you on every deadline, make a thousand and one changes to the project brief, ask for freebies and discounts galore, but when the time comes to loosen those purse strings, they suddenly vanish into thin air.
Sound familiar? Maybe the problem is not the clients. Maybe it’s got a little to do with the mess that is your invoicing system. So what can you do to fix the problem and get that wondrous check in the mail right on time?
Here are a few suggestions.
1. Set up Standard Payment Terms & Conditions
This is a running problem with startups and most freelancers. (Yes, even long-time freelancers!) Most of these guys pride themselves on their flexibility and “client-focus” and hence leave the fine print about payments untouched. Big mistake.
As every savvy business person knows, it is absolutely imperative to have a boilerplate for your payment terms and conditions before you take on any new project or client. While there is definitely wiggle room to adapt the terms for each client here and there, try and stick to the script to reduce your headaches when the time comes to collect your monies.
Detail everything out like:
• What modes of payment you would like to accept. Cash, credit cards, PayPal? Spell it out to avoid last minute conflicts.
• How would the payments be split? Would you expect a partial advance before you begin? Would you insist on a complete advance for new clients? Would you accept payments in installments?
• What is your policy on final delivery? Would project delivery be tied to receipt of full payment?
• What kind of a credit period would you offer? As per data from Xero, debtors tend to pay two weeks late, on an average. Work out the cash flow cycle time that suits your business the best and keep your payment terms two weeks earlier than the actual amount of time that you can allow your debtors- e.g. if you need to get paid within 20 days, set your payment term as “7 days or less.”
2. Build a Crystal-Clear Invoice Template
A meticulous and uncomplicated invoice is your strongest tool that will help you get paid quicker than the older, slacker version of you. There are two goals that every invoice ought to fulfill
a. It must be easy to understand and must explain the scope of work done succinctly to the client.
b. It must offer the client every essential piece of information needed to transfer funds from his account into yours in the least amount of time possible.
Invest in an automated invoicing tool, like CloudBooks, to make sure you cover all your bases. If a paid tool is too much expense, use a free invoice generator like this one from Shopify to churn out professional invoices at no cost.
So what would I put into every single invoice I send out?
• Your business’ name, address and contact details.
• Service tax or VAT number for registered businesses is a legal requirement in most countries. In the absence of a service tax number, include your tax identification number to help your client keep up with their taxation records.
• Unique invoice number to help identify the invoice and track it at a later date
• Date of invoice, so that the client knows when the invoice becomes payable
• Client Name, address and name of your contact person at the client’s office to avoid ambiguity of any sort
• Itemized list of services rendered, with descriptions where possible
• Rate per item, Quantity / no. of units / hours etc., Total Price per Item
• Taxes payable
• Total amount payable
• Payment methods accepted and online transfer details for quick payments
• Payment Due Date
• Signature of an authorized signatory
3. Charge Late Payment Fees
While you may try to do everything possible to remind a client of upcoming payments, there will inevitably be those slippery characters who manage to evade on-time payments. As mentioned earlier, an average delay of about two weeks from the set payment due date is expected across the board according to research. But when clients cross this expected hurdle of being overdue by two weeks, communicate to them clearly, but firmly that there will be consequences to their actions.
Charge them a late payment fee to avoid such delays in the future. This not only sends the message home to the penalized client that you are serious about your payment terms, it also helps spread the word to other clients who might be tempted to take their own sweet time with their payments.
Old habits die hard, but if there’s one habit that’s choking your business’ growth, it is sloppy invoicing practices. After all, if you don’t get paid for the hard work that you put in day in and day out, the whole point of running a business is completely missed!
Tracy Vides is a content marketer and social media consultant who works with small businesses and startups to increase their visibility. Her posts on marketing and entrepreneurship can be found on Steamfeed, Business2Community, Tech Cocktail, and elsewhere. Connect with her on Twitter @TracyVides for a tête-à-tête!