How to Make Sure Your Clients Always Pay on Time

If you're a business owner, late payments may be your biggest arch-nemesis, right next to tax season!

Late or unpaid payments alone add up to almost a trillion dollars each year, and SMEs have no option but to write them off as bad debt.

A survey by Businesswire magazine tells us that businesses in the US frequently experience late payments. A sizable chunk receives payments 20-30 days past the payment due date.

It can be quite annoying and detrimental to your agency's growth.

Agencies work very hard to deliver results for their clients, fighting off many challenges that impede their speed and productivity. They also need to make payments to their team members and freelancers apart from other operational costs.

And when their clients ignore all T&Cs and habitually pay late, it can be extremely disheartening.

The Severe Consequences of Late Payments

Here are some of the serious consequences late payments can have on businesses:

1. Cuts cash flow and makes it difficult for SMEs and agencies to take on new projects due to insufficient working capital.
2. Reduces cash flow and makes it difficult to meet operating expenses.
3. Affects your future relationship with your suppliers and vendors if you don’t pay on time.
4. Affects your credit rating and impacts your ability to obtain future credit facilities.
5. May lead to shutting down your business in the worst-case scenario.

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5 Easy-To-Learn Tips to Help You Collect Payments on Time

FreeAgent suggests five tips you can try to get your invoices paid on time. Read these below!

1. Use the Benjamin Franklin Effect

It works on the stimulus-response principle and later on uses classical conditioning to bring about the desired response. Here you'll use induced kindnessā  to condition your client's mind to make them pay on time.

According to the story, Benjamin Franklin successfully befriended a man who despised him by asking him to borrow a book. In line with this approach, one act of kindness induces another one, provided you're able to get them to do the act of kindness in the first place.

What is important here is that you can't achieve the same result if youā  initiate that act of kindness. So, ask your customer to do a favor for you in the initial stages of your relationship. It will help you forge a strong friendship with them and build trust. It also helps them form an image of you in their mind as someone who is worthy of doing a favor and replicate the same behavior again.

2. Don't Make Them Feel Guilty

People generally don't like to feel guilty and making late payments actually leads to a guilt pang. So when you send emails about invoice reminders, add the phrase,Ā  I need your help.ā  It's a recommended practice to appeal to the good senses of your client.

3. Use Your Client's Name and Make Them Feel Special

It is an old tactic that is endorsed by Dale Carnegie in his bestseller How to win friends and influence people.ā  In any language, a person's name is the sweetest word for them, and when you call someone by their name, they feel special. And what better way to get your clients to make payments on time than by making them feel special?

4. Use Swift Reminders From Day One

Invoices might come as a rude interruption, and to avoid this, you can include the payment due date in your communications and emails as a soft reminder from the beginning. It's not considered rude if you clearly set out your payment terms just after you sign the contract. Late payment charges and legal consequences for non-payment should also be highlighted. But your first email should be a bit friendly. Warning for legal consequences can come later. Tools like Invoice Simple make it easier to add these clauses in a soft tone because their templates use a language that's nice yet professional.

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5. Use Nouns More Frequently

Nouns are extremely powerful. Instead of asking someone to participate in an event, tell them to become a participantā  and reap the rewards. You will likely see a greater turnout. Instead of mentioning late payment, refer to the people as late payers while warning them about the legal consequences.

Other Tips to Get Clients to Always Pay on Time

Here are some valuable tips to make clients always pay on time.

1. Adopt a Recurring Billing Model

In this model, you convert your project-based charges into more predictable and consistent revenue, which looks similar to product-like charging. Most SaaS companies follow this payment model. So, you get paid an upfront fee for the duration of the project. You can use Stripe, Square Payment, G2 Deals, or a similar payment service, and your client's credit card will be charged automatically. There are no delays and no need to send reminders in this system.

2. Implement the Retainer Model

As an agency, you have many options. You can charge an upfront fee and claim the remaining fee through an invoice after the completion of the project. It's quite transparent and doesn't lead to any fuss or trouble later on, as everything is documented and communicated to the relevant people at each step.

However, it doesn't come without its flaws. It can expose you to cash flow issues because of late payments. In that case, you can switch to a retainer model.

In this model, you charge a retainer fee, and you have numerous ways to calculate it. You can divide the project fee by the number of months you'll work on it. For example, if the total fee for the project is $7500 and it's spread over five months, then you'll get a $1500 per month recurring fee.

The prime benefit of this model is that you can avoid late payments as the client is supposed to pay on time to keep the project from collapsing midway. Secondly, it offers a high degree of predictability.

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3. Use Deposits as a Guarantee

Clients can pause or abort a project at any time, even without making any investment, because it doesn't affect them at all. You can ensure future payment by using deposits as a guarantee. The step makes a client commit to the project and ensures that they pay for it.

Most agencies don't charge a high deposit because they want to ensure on-time payment.

However, it works given the upfront amount is substantial enough, so a client cannot hold or defer the remaining amount. So, you should collect at least half of the payment upfront to prevent late payments.

Final Words

If you want to ensure guaranteed payments, design your contracts smartly. The contract should mention everything related to payment in clear, concise terms to prevent misunderstandings later on.

As an agency, you can split the entire project fee into a 40% down payment, 40% when you complete half of the project and the remaining 20% after the project gets completed.

Alternatively, you can also sign a one-month, two-month, or three-month term and send the invoice accordingly. Moreover, you should clearly outline the scope of work, due dates, and late payment penalty to prevent any disagreements in the future. So, all prices and payment terms should be included in the contract to ensure long-term success as an agency.