How to deal with LATE PAYMENTS? (Part 1)
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NOT getting PAID on TIME is every entrepreneur or small business' NIGHTMARE come true
The evil deed of late payment or NON-payment is any freelancer, sub-contractor or small business owner's nightmare. One default can be detrimental to a small business' existence. Cash flow is the most crucial nucleus of any small business or independent contractor. As a sole proprietor you do not have the luxury, like big corps, to request some Working Capital Funding from another part of the globe. NO cash flow guarantees NO ability to pay your vendors/staff on time - and of course your good reputation you've built on for several blood-sweating years, well, that gets a powerful kick in the mouth. You'll agree then that it is uber important to do three things:
1. manage your accounts receivables 24/7
2. monitor your accounts receivables with a oversized hawk's eye
3. invest in good clients (easier said than done).
Jip, you can argue: if debtors' accounts go 60-90 days in arrears I will contact a reputable Collection Agency (or Lawyer) to help me get my money that so rightfully belong to me! BUT before you give them collectors a chunk of the collections there are several housekeeping rules you should swear by and already have in place. As the driver of your bus(iness)' destiny and success, you have more control over the managing bit then you think. In part 1 of 'how to deal with late payments' we address the behind the scene Account Receivables management aspect. As a small business owner there are guaranteed housekeeping rules, and terms and conditions that can prevent late payments, OR not getting paid on time. In part 2 of this lens we will address how to actually monitor your business' Accounts Receivables (cash flow).
1. manage your accounts receivables 24/7
2. monitor your accounts receivables with a oversized hawk's eye
3. invest in good clients (easier said than done).
Jip, you can argue: if debtors' accounts go 60-90 days in arrears I will contact a reputable Collection Agency (or Lawyer) to help me get my money that so rightfully belong to me! BUT before you give them collectors a chunk of the collections there are several housekeeping rules you should swear by and already have in place. As the driver of your bus(iness)' destiny and success, you have more control over the managing bit then you think. In part 1 of 'how to deal with late payments' we address the behind the scene Account Receivables management aspect. As a small business owner there are guaranteed housekeeping rules, and terms and conditions that can prevent late payments, OR not getting paid on time. In part 2 of this lens we will address how to actually monitor your business' Accounts Receivables (cash flow).
PART 1: Crucial housekeeping rules to MANAGE cash flow (payments)...
SIGNED TERMS & CONDITIONS (T&Cs)
Have a detailed Terms and Condidtions in place via an Agreement, Contract or Order Confirmation to protect you (your business) legally. BUT that Agreement, Contract or Order Confirmation MUST be signed by the end-client BEFORE the product/service commences or gets delivered. That rule counts for ALL customers, including friends - no exceptions.
No signed Contract in place, no legal leg to stand on. T&Cs will include items such as: price; duration/delivery arrangements; liabilities; responsibilities; confidentiality/privacy; payment terms; upfront deposit; right to charge for late payments and debt-recovery costs.
CONCLUSION: make sure you cover MORE than LESS in your T&Cs.
INVOICE DUE DATE
Although you might have a general rule (ie within 30 days from invoice date) and it is already mentioned in your T&Cs, it is crucial to consider the due date carefully. Some industries or even individual projects might require an upfront percentage payment (in which case you will issue two invoices, 'commencement' and 'settlement'). OR it is of great importance that full payment is received within less than 30 days. This will again depend on your liabilities to your vendors or sub-contractors you might be using.
It is fatal NOT to show a DUE BY date on your invoice, you will be last on your client's Payables List. Think about it if YOU receive an invoice with no due date the first thought that comes to mind: No date NO pressure. You release a sigh of relieve, you relax, you will pay when you are ready to pay.
CONCLUSION: A due date on an invoice is a MUST.
INVOICE PARTICULARS
Although the client might be aware of your Payment Method and Payment Terms, as s/he read and signed the Contract (a month ago) you MUST repeat the Payment Method and Terms again on your Invoice. Your invoice might go straight to the Accounts Department, where you are just a number. Having to phone people to ask them: 'In which name must I make out your cheque?' or 'In which account, in which currency can I transfer your money into?' is one of those things a bookkeeper or administrator will put LAST on their To-Do-List.
CONCLUSION: your invoice must repeat your Payment Terms and Payment Method.
UPFRONT DEPOSIT
Unfortunately in my business, to protect myself, I have to ask for a 50% (in some cases 75%) upfront payment, especially when it comes to once-off projects. One nurtures a good relationship with retainer clients and realise how cold or hot the water can be with specific clients. BUT you have NO guarantee otherwise that you will get ANY money from a once-off client that you might never meet or see.
CONCLUSION: by requesting an upfront payment via your T&Cs before the project (service) commences or product gets delivered you definitely reduce the risk of not receiving ANY payment .
EARLY PAYMENT OFFER
An early payment discount offer (ie within 10 days) to a client is an attractive option if you are after early payment or OVERDUES. You loose a bit of money on the overall deal, but at least you get your money and it can open doors for repeat business. An early payment discount offer might be a once-off, otherwise incorporate it in your overall T&Cs.
LATE PAYMENT INTEREST
In some countries, ie like the UK, there are laws (such as Late Payment of Commercial Debts Interest Act 1998) in place which gives small business' (ie 50 or less employees) the statutory right to charge an interest on late payment of commercial debts.
CREDIT CHECKS
If the contract or delivery concerns a large some of money there are several companies out there that can assist you to credit check the client before you go ahead with the deal. You can also, for FREE, check the client's payment record with other clients. Or go online and pay for a credit rating via a Credit (Bureau) Reference Agency (country specific).
INSURANCES
Only spare the extra expense if the sum in quest is LARGE. To mention a few. Credit Insurance can cover you if your client becomes insolvent. Legal Expenses Insurance (LEI) will help you to recover lawyer and court debts. A Third-Party Guarantee legally binds a third party to pay in case your client cannot.
Have a detailed Terms and Condidtions in place via an Agreement, Contract or Order Confirmation to protect you (your business) legally. BUT that Agreement, Contract or Order Confirmation MUST be signed by the end-client BEFORE the product/service commences or gets delivered. That rule counts for ALL customers, including friends - no exceptions.
No signed Contract in place, no legal leg to stand on. T&Cs will include items such as: price; duration/delivery arrangements; liabilities; responsibilities; confidentiality/privacy; payment terms; upfront deposit; right to charge for late payments and debt-recovery costs.
CONCLUSION: make sure you cover MORE than LESS in your T&Cs.
INVOICE DUE DATE
Although you might have a general rule (ie within 30 days from invoice date) and it is already mentioned in your T&Cs, it is crucial to consider the due date carefully. Some industries or even individual projects might require an upfront percentage payment (in which case you will issue two invoices, 'commencement' and 'settlement'). OR it is of great importance that full payment is received within less than 30 days. This will again depend on your liabilities to your vendors or sub-contractors you might be using.
It is fatal NOT to show a DUE BY date on your invoice, you will be last on your client's Payables List. Think about it if YOU receive an invoice with no due date the first thought that comes to mind: No date NO pressure. You release a sigh of relieve, you relax, you will pay when you are ready to pay.
CONCLUSION: A due date on an invoice is a MUST.
INVOICE PARTICULARS
Although the client might be aware of your Payment Method and Payment Terms, as s/he read and signed the Contract (a month ago) you MUST repeat the Payment Method and Terms again on your Invoice. Your invoice might go straight to the Accounts Department, where you are just a number. Having to phone people to ask them: 'In which name must I make out your cheque?' or 'In which account, in which currency can I transfer your money into?' is one of those things a bookkeeper or administrator will put LAST on their To-Do-List.
CONCLUSION: your invoice must repeat your Payment Terms and Payment Method.
UPFRONT DEPOSIT
Unfortunately in my business, to protect myself, I have to ask for a 50% (in some cases 75%) upfront payment, especially when it comes to once-off projects. One nurtures a good relationship with retainer clients and realise how cold or hot the water can be with specific clients. BUT you have NO guarantee otherwise that you will get ANY money from a once-off client that you might never meet or see.
CONCLUSION: by requesting an upfront payment via your T&Cs before the project (service) commences or product gets delivered you definitely reduce the risk of not receiving ANY payment .
EARLY PAYMENT OFFER
An early payment discount offer (ie within 10 days) to a client is an attractive option if you are after early payment or OVERDUES. You loose a bit of money on the overall deal, but at least you get your money and it can open doors for repeat business. An early payment discount offer might be a once-off, otherwise incorporate it in your overall T&Cs.
LATE PAYMENT INTEREST
In some countries, ie like the UK, there are laws (such as Late Payment of Commercial Debts Interest Act 1998) in place which gives small business' (ie 50 or less employees) the statutory right to charge an interest on late payment of commercial debts.
CREDIT CHECKS
If the contract or delivery concerns a large some of money there are several companies out there that can assist you to credit check the client before you go ahead with the deal. You can also, for FREE, check the client's payment record with other clients. Or go online and pay for a credit rating via a Credit (Bureau) Reference Agency (country specific).
INSURANCES
Only spare the extra expense if the sum in quest is LARGE. To mention a few. Credit Insurance can cover you if your client becomes insolvent. Legal Expenses Insurance (LEI) will help you to recover lawyer and court debts. A Third-Party Guarantee legally binds a third party to pay in case your client cannot.
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tradecraftforspies Jan 31, 2010 @ 12:48 pm | delete
- Great article :) Hope to see it rise through the rankings and get some more exposure. It deserves it.
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express-va
Feb 1, 2010 @ 4:04 am | delete
- Thank you for your positive motivation tradecraftforspies - much appreciated.
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express-va
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