There are a couple different types of slow payers. First of all there are slow payers who will always pay and are super reliable, such as government contracts or large corporations who often pay invoices on a net 30 or net 60 payment plan.
Then there is the bad type of slow payer who is very unreliable in paying. They’ll often be 90 days behind and only pay when you set up collections.
It’s important to differentiate these two types of slow payers. If you are prepared for the first type, you can deal with them, but the second type is very hard to handle and can be a killer to your service-based business.
Have an Ironclad Contract
The basis of your business relationship should be spelled out in a contract. Having a contract in place helps you ensure on-time payment, and also helps you deal with issues that arise.
Typically, if you build a relationship with every client they’re going to be less likely to want to ruin that relationship by not paying you on time. Make a point to check in with clients, share industry news, etc. As you build that relationship they’ll appreciate you even more.
Cut Off Future Work until Payment Is Made
A big key to slow payment issues for the second type of slow payer is to stop all work until payment is made. This can work well if they’re on a deadline of some type and realize that they need the rest of the work to finish.
Collect Payment in Advance
In many cases you can avoid the issue of slow payment by simply collecting payment in advance. This can work well with a lot of types of services, especially project-based work that doesn’t include an hourly component. But even hourly work can be billed in advanced and charged against the payment.
Send Invoices ASAP
Don’t hold on to invoices, instead send them out immediately upon completion of the work or the time period involved. If you wait too long to send the invoice, the client might forget about needing to make payment and end up in a cash-flow shortage.
State Payment Terms on the Invoice
Aside from having terms in your contract, remind your client of your payment terms by putting them on your invoice under terms of payment. This will help them notice that you’re expecting payment on time and the consequences of not doing so.
Offer a Discount for Fast Payment
Offering discounts as low as 3% will entice your client to pay you faster in order to qualify for the discount, because everyone likes saving money.
Charge a Late Fee
Be careful about actually charging a late fee to a client who will eventually pay but who is chronically slow. You don’t want to risk losing a reliable client even if they are often late at paying their invoices. But, if you have encountered a client you know you will not work with again, go ahead and implement the late fees.