Banking

Client payment structures that get the check

You like to have control over how your clients structure their payments to you. Some factors are out of your control, but you can work some of these payment strategies into your project contract.

When the Eagle Technology Consulting firm was unsure of a new client's credit status, it didn't turn the new company away automatically. Instead, the consulting firm elected to bill the newly formed company up front for nearly half—or $10,000—of the overall invoice.

While up-front billing isn’t how the company typically does business, according to Eagle sales director Chad DeMeyers, it was one way to rest any fears the Atlanta-based firm had by assuring payment would be made.

"It covered our costs in case something did go wrong down the road," explained DeMeyers. "[The client] was happy to do that. They understood our concerns, and they paid us. Since then, we have been billing them as usual."

A typical billing cycle for Eagle clients, said DeMeyers, is at the first and 15th of each month. Two-week billing helps the company pay its expenses, including the salaries of 30 employees, and keeps checks coming in on a predictable basis.

For many consultants—large firms and individuals alike—constructing a suitable payment strategy encourages clients to pay portions of their bill in predictable increments, and motivates consultants to complete the project.

If used correctly, these strategies can be employed to ensure the project and payment move forward.

Payment at key moments
Though consultants vary their payment methods with each project, there is some agreement that dividing up payments can help assure consultants that they will be paid in a timely manner.

Four "milestone" payments from a client work best for Web developer Marian Briones. A full-time consultant in Fremont, CA, for nearly a year, Briones divides up client payments to coincide with particular stages of Web site development.

After an initial payment, a second payment is due once a client signs off on their mock-ups, said Briones. A third payment is made when Briones delivers a coded site, but before a client signs off on it. When the client's changes have been made to the site, but haven’t yet gone live, the fourth payment is due.

Briones’ payment structure saved her recently when a newly acquired client made plans with her to launch a new Web site. A payment that was due from the client was not made. Instead of just continuing to work on the project, Briones talked about the payment to the client, who had to concede that the project would have to be put on hold until they had the funds.

The agreement saved  time and energy in having to wrestle with the status of the project and payment, and enabled Briones to focus on her other 10 clients.

"Documentation is everything," said Briones.

Exchange final deliverables for a check
Marya Triandafellos, president of MET Designs in New York, uses a similar payment structure. The Web development firm also organizes payments from clients into halves or thirds, depending on the project. But no matter the length or type of project, the company doesn’t hand over the final deliverables until the last check has been paid.

Such an arrangement helped with a recent project for Triandafellos' firm. A client called to request that the firm move into the final phase of a project. But because the client was behind on a payment, Triandafellos was able to delay work until a check arrived.

“It's difficult because you get a lot of pressure. They say, 'We need it now, it needs to go live.' But we try to be flexible and make exceptions," said Triandafellos. "It really helps if the client doesn't have the final thing in their hand."

The one situation to avoid, said Triandafellos, is when consultants begin work without any money up front, and then deliver a final project still without payment. Such stories were pervasive during the dot-com boom, said Triandafellos. "And then they wonder why they don't get paid."

Discount incentives
Another payment strategy, the discount, works in reverse. Giving clients an incentive to pay invoices on time and the opportunity to see how they could save money can get a check signed—and faster than normal.

A 1.5 percent discount on an invoice paid within 15 days is standard billing for Andrea Michalek, president of Topular consulting firm in Harleysville, Pennsylvania.

Michalek reasons that instead of a penalty, she’ll give a bonus to clients that pay on time, which then keeps her from the most unpleasant part of her job.

"That way, I have the cash, I don't have the collection hassle, and then I have smooth relationships," said Michalek. "And I get to do what I like to do, which isn't collect money or create invoices or do any of that."

For ongoing services, Briones has found similar incentives work for her clients as well. Besides design and development, she also offers Web site hosting, and clients who pay 12 months in advance receive a free month.

The policy works well, said Briones, and best of all, it has staggered the billing times for each client so that large checks no longer come in all at once.

Threats of penalty
A potential penalty can also motivate clients. At Triandafellos' firm, a 1.5 percent late fee is applied to invoices that exceed their due dates. Actually listing a due date for payment, instead of the "net 30" clause typical of consultant invoices, has garnered her greater success in collecting payment.

Triandafellos said if her design firm is going to charge a late fee, having an actual deadline for the invoice to be paid helps the client understand when that charge will take effect.

Rarely has Triandafellos applied the late fee, barring one case with a "chronically late" client who was finally swayed into paying on time by the threat of paying more money.

Invoice strategies
One payment method involves the invoice itself. For Eagle, a reliance on detailed invoices that explain the services performed, the number of hours for each service, and the rate helps an invoice get through a client's internal approval, said DeMeyers.

"The more detail you can give them—about what you worked on, the day you worked on it, the amount of hours you worked, and a description of the work performed—helps. Spend five minutes to really put down what you did," suggested DeMeyers.

To further protect the firm, Eagle consultants make internal notes about each task performed for a client. If a client has further questions about their invoice, the sales or project managers can then rely on the internal documentation.

"If you have really good time sheets that are documented well," said DeMeyers, "that could save you a lot of headaches down the road."
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