Running an agency involves a variety of different tasks, one of them being handling clients who don't pay on time. It’s one of those difficult pieces of business people don’t often talk about, but today we're doing it.
It’s important to have measures in place for when clients don’t pay so you aren’t stuck in the middle. While it ultimately depends on the client, there are positive and negative actions to help ensure timely payment. When clients pay on time, you’re incentivized to put your best work into their project.
1. Emphasize Clear Communication
Regardless of how you handle payment issues, clear communication is crucial. It's the single biggest change you can make when it comes to clients who don't pay on time. It begins while reviewing the proposal and contract. Ensuring your client understands payment terms before signing can help minimize miscommunication.
Clear communication then needs to continue through the length of the contract term. This includes deliverables, delays, and how your invoice is delivered. Using an invoicing software keeps you organized, but each has its quirks. It's important to be proactive about any issues or points in the process where they may have questions.
This doesn’t just apply to you. Your entire team needs to focus on creating a culture of strong and clear communication. Giving them the freedom and tools can empower them to foster communication with their clients.
Your entire team needs to focus on creating a culture of strong and clear communication.
2. Make Payment Terms Easy to Understand
A barrier to your client’s successful payment could be your payment terms. If it’s hard to understand, and you often get questions about how much is due when, it may be time to change. People often put off tasks that are a hassle, regardless of what it is. So instead of focusing on the scope of your contracts, take some time to make the payment terms clear for those clients who don't pay on time.
This doesn’t necessarily mean you need to change your agency’s payment terms. It may be as simple as modifying some wording in your contract or explaining it more thoroughly. When a client understands the payment terms, you won’t need to answer emails and calls, and they’ll be more likely to pay on time.
3. Watch for Trouble Signs
There are some trouble signs you should lookout for when signing a client. Some of these may be bad enough to stop the process and move on, and some may still be a good client with a bit of extra work.
If a potential client is delaying signing the contract or changing terms multiple times, that’s not bound to change once work has started. Of course, not every client will be a breeze to work with and it happens, but you also want to keep your team’s sanity in mind.
If a company is questioning your payment terms and implying they seem unreasonable, you may want to think twice. (As long as your payment terms are reasonable, of course.) If they question your payment process now, it’s likely they won’t be eager to pay when the time comes.
If they question your payment process now, it’s likely they won’t be eager to pay when the time comes.
4. Offer a Retainer for Recurring Services
Offering a retainer helps minimize confusion with invoices and standardizes your charges. This is ideal for ongoing work that doesn't vary often. This may not work in all cases, but offering a retainer agreement for recurring work can simplify life for both you and your client.
It’s important to set the right rate and to communicate the reason, though. In some cases the retainer may be larger than recent months, but could ultimately save them money. You’ll need to share the increase in value with your client, or they may balk at the change. Overall, though, retainers can help you with those clients who don't pay on time.
5. Automate Payment
Automating invoices and payment can help both parties. You don’t need to remember to send the invoice, and the client has one less thing to worry about. This may not be ideal for all clients, as some clients may not feel comfortable authorizing automatic payments. If this happens, sit down with each client and explain the benefits, but be prepared for them to say "no".
If you’ve chosen a retainer agreement, it’s the ideal invoice to automate. It’s the same amount each month, giving the client predictability. You may still have some clients reject this idea, and that’s okay. But if you have the systems in place to do so, it can help you with those clients who don't pay.
6. Incentivize Early Payment
Incentivizing early payment can be a good way to ensure your invoices are paid on time. Generally, this involves a discount on your services if paid early, similar to how some insurance providers offer a discount if you pay the entire premium up front or choose direct deposit.
It’s important to note, though, that you need to strike a careful balance. It needs to be worth it to the client while still giving you good margins. Too deep of a discount and every client will be incentivized and you’ll be missing out on that profit.
Incentivizing for early payment can help ensure your invoices are paid on time.
7. Give a Deadline When Work Will Stop
Some clients don't pay respond well to the “bad cop” routine, or negative reinforcement. This means that early payment incentives don't make a difference; you need to emphasize the penalties that will incur if they don’t pay on time.
It’s important to be respectful and pleasant in business, including in these hard conversations. But you also need to stand your ground, and your team needs to be a united front. Make sure terms are clear in your contracts, including penalties for late payment. Whether this is interest every week or month, or if work is stopped, or both, be clear, and be strong.
You need to be respectful but strong in handling late payments.
8. Make Payment Easy
This is one of the most important pieces of ensuring on time payment. If your portal is hard to access or clients have to pay by check when they would prefer to pay electronically, then they may put-off paying you. Cut the hassle to maximize your results.
Your invoicing software will dictate what payments you're able to accept, but many provide different payment options. When they sign on, take note of how they prefer to pay and make an effort to honor that. When you make payment easy for clients, invoices will get paid.
9. Nurture Your Relationships
This is the most important advice we can offer. Create strong and mutually beneficial relationships, and they'll be happy to pay every invoice. This could mean strong communication, thoughtful emails, and a strong team, though it can vary by client. Focus on how they prefer to work (within reason) and they’ll see the returns of working with you.
Regardless of how you nurture your client relationships, make sure it’s a priority for your team. Powerful relationships are the key to successful business, not just timely payment. These powerful relationships can bring in referrals, helping you grow, as well.
Powerful relationships are the key to successful business.
Client relationships are the key to a successful agency, regardless of industry. And timely payment is an important part of that. It minimizes your reluctance to work on that account, and ensures your cash flow is, well, flowing. With these nine strategies, you can improve communication, invoicing, and minimize strained relationships with those clients who don't pay on time.