Banking

How to get paid on time


If all of your clients always pay your consulting fee in a timely fashion, consider yourself blessed.  Who among us that has been consulting for any length of time has not had at least one customer that stretched the limits of their agreement when it comes to payday?  Oh, that first check arrives right on time -- maybe even early.  Then they let one slip a day or two past the due date.  If you don't object, next thing you know they're a week overdue, then eventually a month or even more.

When you allow your client to pay you late, you are essentially financing their business at no interest.  Did you mean to do that?  Of course not.

Why do companies let payments slide?  How could they do that to us poor, struggling independents?  Let's face the facts:  your client is a business, not a human being.  The job of everyone in that business is ultimately to make money for the company, not to keep us consultants fat and happy.  If they can stretch out a payment without interest, they'd be stupid not to do so.  What you as a consultant need to do is to can that "can".

First of all, you need to have a contract that stipulates payment terms.  If you don't have it in writing with their signature on it, how can you expect them to honor your agreement?  "Did we say something about when payment is due?  I can't recall..." forms a typical response.  If your terms aren't formally stated, then they will be informally followed.  It doesn't matter how chummy you are with your client -- good fences make good neighbors, and you don't want to encourage anyone to trample on your income.  You probably want to review your contract with a lawyer, but for starters there's a good sample contract at the 'Lectric Law Library.

Second, if your client abuses your terms you must object.  Your first warning shot doesn't even need to sound like one.  "Hello, I just wanted to make sure that your payment wasn't lost in the mail, since it is now five days late."  Many clients will gather from this cordial reminder that you take timely payment seriously.  For repeat offenders, state unemotionally that all work will cease until payment is received.  That almost always does the trick, unless they have no further need of your services anyway.  If someone stiffs you for good, then get your lawyer to send them a letter.  Most companies will go ahead and pay rather than risk legal action and the bad publicity it creates. 

I've often had clients that tried to pull my heartstrings.  Smaller companies really are often on a tight budget.  They may not really be faring any worse than the big guys, but they can't just run up a big debt to cover their operations either.  So, they're looking for ways to cut back and stretch cash, and then they see your invoice lying there waiting to be paid.  Naturally, we consultants like to be helpful to our clients (it's what we do), but you have to make it clear to your customer that your services do not include financing (unless you really do want to let them pay interest).

Which brings us to a final point: incentives.  Negative incentives rarely work.  Unless you charge an exhorbitant late fee, your client is likely to look at any penalty as a reasonable interest rate for additional financing.  Plus, penalties leave a bad taste in everyone's mouth.  Try a reward for a good payment practices instead.  Maybe you'll knock 5% off if paid within 10 days (and naturally you'll build that extra 5% into your fee).  People like to achieve rewards more than they like to avoid punishment, as we learn from Behavioral Psychology.  Another finding of Behaviorism is that intermittent rewards work better than consistent ones.  A strategy that's worked well for me is to give a "one-time only" out-of-the-blue customer appreciation credit to a client that has paid their bill on time for a long time, like a year or more.  It's not included in our agreement, so it's unexpected and perceived as a heartfelt "Thank you for being such a good client."  It tells them how important timely payment is to me, and furthermore how important their continued business is to me.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

29 comments
noel
noel

I am surprised that you don't talk about getting paid in advance. All of my clients give me prepaid blocks of time. Usually between 10-30 hours. When the block gets below 5 hours, I send a detail of the hours and ask for another block. It's the only way yo go.

Marty R. Milette
Marty R. Milette

Many of the problems getting paid are solved if the consultant or service provider behaves and appears as a 'professional'. Some examples: 1. NEVER work 'on-spec' in the hopes that if you do something as a 'free sample' or 'proof of concept' that the client will be so impressed as to eventually agree to pay for it. This rarely ever happens. Spend time on paying work or marketing activities only. 2. Sorry in advance to all Australians, but I've been burned several times from Australian companies and individuals who take the work then stiff me on the payment. I suppose they figure (rightly so) that they are far enough away that there is nothing I can do about it. In most cases they are right -- and the costs involved to recover the debt would be greater than the debt itself. Use care when doing work for very remote clients. 3. Prepare and have he customer sign (or otherwise acknowledge and agree to) the terms of the project and statement of work to be performed. This should clearly spell out fiddly details like the scope of the work and rates for out-of-scope work, invoicing and payment terms, etc. These kinds of things tend to demonstrate that you are a PROFESSIONAL (worthy of being paid!)

reisen55
reisen55

My clients always pay me on time, sometimes in early advance if I so request. My methods are simple: follow the ancient, forgotten law of IBM. Respect for the employee (client staff) Go the extra mile to do a thing right Spend alot of time making the client happy. Next, if I have an unexpected bill, I arrange it so that something looks free or like a cookie. Clients like to think they got something for free and if it is no real skin of my back to do so = a happy client and a paid invoice on time. I also schmooze with the client, spend time when necessary talking with staff and owners on whatever subject at hand - buy them coffee cake and maintain a cheerful attitude. Humor: important, do not take everything seriously or the consultant and client will go crazy.

JohnMcGrew
JohnMcGrew

Clients that do not pay are not worth the trouble. And I am not a bank. Clients who "take their time" paying me ultimately see that reflected each year when I re-evaluate my rates. I have some clients that literally ask me to send bills sooner than my regular cycle; they get the "A" rate. I've go others that lag months behind. They get the "D" or "E" rate, which more than makes up for whatever interest I might otherwise be making from that money. And why be so wimpy when payments do not arrive? Forget the "Um, your check must be lost in the mail" nonsense. Be polite, but let them know in no uncertain terms that non-payment is not acceptable. Not paying you is not respecting you. I assure you; their other vendors got paid on time. And if you tolerate this behavior as routine, then I don't think you respect yourself enough either. (It took me at least a decade in this business to figure that out) Consultants who allow themselves to get walked all over usually get walked all over. And I totally reject the "We're a small business and have a hard time" argument. Hey, I'm a small business, and I've got bills to pay too. And I assure you that my vendors don't tolerate payments being a single day late without some form of retribution!

techrepublic
techrepublic

I once offered a large client 5% off if they paid within 30 days. They took the discount and paid late anyway. That was the last time I tried that little trick.

dcovill
dcovill

I have been using the "discount for prompt payment" strategy for over 10 years. It's not perfect, but it works far better than any other I've tried. Dan Covill San Diego

Sterling chip Camden
Sterling chip Camden

... but it's not a half bad idea. I wonder if I could spring that on my clients?

rashedmbutt
rashedmbutt

After the approved time sheets, invoices were mailed and held back by the vendor. After several emails and telephonic reminders the vendor would not budge and would not make payment. A legal notice is sent asking for the payment. Still the vendor will not make payment. Now they are are asking about mediation . Would that solve the problem and araange payment ultimately?? Any other suggestion , in addition to the foregoing?? Rashed

chris
chris

I do the same thing with my business. I go the extra mile and am always available, even on weekends or odd hours. I try to befriend them and make them part of the process. Then if the situation ever arose where i wasn't getting paid, i can call and it is no big deal to drop a friendly reminder. I only have a couple of clients that abuse me. And I usually just drop them to the bottom of the priority list until they pay. That always get's their attention. I usually get paid within 10 days from nearly all clients. Some of them are 1 day turn around. Wish they could all be that way! Regards, Chris

olanna
olanna

And it happened mostly while I was working as a Consultant for my friend's consulting company. He would take on small jobs from small businesses. (This was happening during the dot com bust, so he was happy for the work). Sad to say, most of the companies he took low bids on were also using antiquated hardware and software and very slow to pay their bills. They always wanted to complain about the hours I charged and the quality of my work. I got tired of it, and told my friend I wasn't in the business to debate my work, had been in the field longer, and didn't want to work with him anymore. He was a great engineer but a lousy manager. I started taking on my own projects, things I knew would be interesting and worthwhile. I have not had one complaint since I did that, and it was the single BEST career move in my life.

jbrunner007
jbrunner007

Read my post too. its a hedge from this crap!

reisen55
reisen55

Standard business ethics alone mitigates against this idea. For being honest, why should I - or any consultant - or any business anywhere for that matter - offer an incentive for doing something RIGHT AND CORRECT? Not one of the people who sendme bills and invoices offer me that sort of deal. And what is the reverse argument? As a consultant, if they do not pay me on time, shall I then add a 10% slow response time to my efforts? "Oh, I am sorry. You did not pay on time last month. I will be late by 30 minutes every day this month. Thank you." And how long would I have this company as a client? If a client ever stiffed me a check or paid hugely late, I would gently remember this client as a bad bet and, maybe, a client I can afford to lose and get business elsewhere.

JohnMcGrew
JohnMcGrew

A sucessful professional relationship us built on trust and respect. Pulling a chicken#%$@ stunt like taking an early payment discount when not paying is simply dishonest and disrespectful. No "big" or "professional" company would tolerate that. We as independant consultants should not either.

Sterling chip Camden
Sterling chip Camden

Thanks for the feedback, Dan. What percentage of your customers' payments end up taking advantage of that discount?

mdhealy
mdhealy

I've never been a freelancer, but my wife has. In her case, most of the time clients paid reasonably quickly, so she was patient when they didn't. Word does get around about clients: one trainer I know quietly charges higher rates for clients with a reputation for being slow payers... The most extreme hard-nosed policy I ever heard of was a trainer who is sufficiently prominent in a specific field to get away with a simple policy: travel arrangements must be handled in such a manner that he never needs to use his personal credit cards for any business-related purpose, and the class does not begin before he is handed a check for the fee.

Sigman
Sigman

I know this is somewhat off-topic, but... Sometimes late payment(s) are symptomatic of an understaffed or inefficient Finance department. I know at least one company with an annual 1 Billion+ in revenue that has good people in the department, simply nowhere near enough of them. I work in that company - in IT, not Finance - and I get the calls from vendors asking where their money is. Considering that my office was next to Finance and knowing I saw the AP folks in until past 2100 hours almost every night (me too, obviously), I'd say they didn't have a chance in hell of doing things right or in the right way. Overhead strikes again! I.e., the squeaky wheel gets the grease...

burntfinger1
burntfinger1

I do a 10 net 30 for my business clients and have rarely had a problem getting paid on time even though many of my clients are small businesses which are already in trouble (my best refferer is a lawyer who works only with financially troubled small businesses). If they can't pay the full amount in cash but make something or provide a service I can use, I tell them to pay what they can and I take the rest in product or service. As long as I can pay my taxes, my help and have enough for my needs it works. The only real problem clients I ever had were nonprofits who seem to feel that they're entitled to my services for free because I'm a filthy profiteer making money off the backs of the poor etc. Nonprofits pay 30% of my estimated bill up front or I don't even start.

jbrunner007
jbrunner007

Reading this article, I am left wondering... "What consultant would do business this way?" Every single professional services firm I have ever worked with when I was a full-timer required a retainer. its no surprise that now as an Independent I require one, each month, up front based on the expected billing hours. So If I'm doing a staff augmentation project (see consultant working as employee) and its 40 hours a week, an 80 hour retainer is at hand. By paying a retainer, it keeps the Accounting dept. in good practice of sending you your checks. Since they "can't" be late as at least some money will always come at the first of the month you will often get paid in 1 week or so. My advice, as a consultant, do not work for people that do not respect you. And if you're not good enough to command this respect, then do something else. The fact you have to play banker/accounts receivable is an insult. I think you need to re-do things Chip. You're billing policies should come into line with your other article about much to charge. Your attitude there was on point- this time its just insane we are even talking about this...

tradergeorge
tradergeorge

We always invoiced as "2% discount if paid within 5 days, net 30 days". Many larger companies have a mandate for their CFOs to take discounts wherever available and penalize them when they don't. We usually got paid promptly, even if the customer was having cash flow problems.

rdubrey
rdubrey

I am having a heck of time getting paid from most of my clients. I do good work and respond very quickly to their issues but everyone one of them takes their time. I don't have a payment agreement or anything. All I do is put Payment Due on Receipt on my invoices but that apparently isn't enough. I even take credit cards.... LOL... good article... I devoured it... might take that approach about a discount for fast payment....

B.A.
B.A.

Who did you send the letter to? If you sent it to someone who couldn't just throw it in the trash (CEO, legal dept, etc), go ahead and file suit. Hopefully you put a clause in your contract that says they have to foot the legal bill. Based on what you have said I can't see any reason they would pay if they haven't paid by now,

Sterling chip Camden
Sterling chip Camden

... if you can make it work. I suppose that would depend on the amount of competition for the business, and the practices of competitors.

JohnMcGrew
JohnMcGrew

...they do tend to have attitudes. However, the reality is that most are little different from any corporate client, and usually less efficient. The only difference structurally is that there are no "shareholders" or "retained earnings". Other than that, they exist like most companies do; mainly for the benefit of those working there. Once I was bidding out a job for one; the guy I answered to was quibbeling on the price of the hardware I was selling; This guy, who I knew made at least $50/hr spent litterally a week of his time shopping out the hardware, and was trying to beat my price down by $50 on each unit. (which was pretty much all I was making on the deal) Basically, this guy cost his organization $1000 of his company's time to try to save a few hundred bucks. But when you have no profit to show, nobody seems to notice or even care.

Sterling chip Camden
Sterling chip Camden

Many of my clients are very sporadic in their work-load. I might get 20 hours from them one month, and only a 15-minute phone call the next. I've considered getting a retainer from my more regular clients, but actually those aren't the ones that give me any grief over payment.

reisen55
reisen55

Good thought. All of my accounts are on a fixed fee, quarterly payment basis. This allows them to know in advance what payments are and I can work free and clear of issues. These are the extras I include... Six free emergency service calls. That is the sales cookie that keeps the contract sweet, the proverbial spoonfull of sugar. Allowance for unusual situation or new projects that are not standard for the year gone by. These are what I can bill hourly rate for and do so. One client put in a new retina scanning system that was a new install (I could bill for that) and, later, a visual actuity program that required new monitors (Dell was terrific on quotes) and and software (which was all new and unusual so I could bill for that too). So, I have Annual retainers Six free visits, that's it for the freebie. Unusual projects - billable Emergency visits - billable after the six.

Sterling chip Camden
Sterling chip Camden

Thanks for the kind words, rdubrey. I've found that if you say that it's due upon receipt, they don't believe you. Most businesses operate on a 30-day payment cycle, so they'll assume that -- but since you didn't state it, they don't even take that interval seriously.