Getting paid is what makes your small business work. The checks come in, and you pay the bills. It’s simple — until you get stiffed. Don’t sit back and think it will never happen to you. Chances are you’ll end up dealing with an overdue invoice and a client who can’t — for whatever reason — pay up.
There’s not a lot you can do when you find yourself in that situation — small claims court and debt collection agencies are usually more hassle than they’re worth. But there are a few things you can do to improve your chances of getting paid:
- Communicate – You need to talk to your client, follow up with them and find out what’s going on. You might need to put some significant effort into chasing up your client and making sure they understand the seriousness of the situation.
- Stop work – If a client owes you money and they’re not paying up, you shouldn’t be working for them. Stop all work until they pay their past due balance. That can be pretty motivating.
- Payment plan – Sometimes a trustworthy client gets in trouble, and they can’t make ends meet. While it is unfortunate and not your fault, it might be better to give them some slack rather than maintain a hard-line approach. If a client is at a financial breaking point, there’s a real possibility you won’t get paid at all. Negotiating a payment plan may be a way to ensure you get paid something.
But the best way to make sure you’re getting paid is to limit the ways a client can stiff you. Prevention is the best cure, and here are some common ways to prevent payment problems from happening in the first place:
- Do your research – There’s nothing wrong with Googling a client. Ask around. Get some references if you need to. Clients do their due diligence when they hire a freelancer, and it’s fair game for you to do the same. Avoiding sketchy situations and clients that give you a bad vibe is your first and greatest defense.
- Get a contract – You shouldn’t be doing any significant work without putting the details in writing. Include payment terms, kill fees, scope of work and more. Don’t think of it as legalese, but a way to make sure everybody is on the same page regardless of what happens (because anything can happen).
- Get paid upfront – Always get paid before you start. You should have some sort of payment in hand before any work begins. Don’t take on all the risk and assume the client will pay when you’re done. Even the greatest client in the world could have disaster strike and go belly up before you get paid. You totally trusted them, but you’re still screwed. One way to manage that process is to set up milestone payments.
- Paid for deliverables – No matter how you set up that upfront payment, the remainder of what you get paid should be tied to a deliverable that you’re responsible for. Don’t wait for the client to sign-off — they’ll take their sweet time, knowing that as soon as they say it’s good, they owe you money. It all comes down to leverage.
- Define the scope – It’s also important to clearly spell out the scope of a project. This can be a hindrance to getting paid if a client expects one thing and you expect another. In a worst-case scenario, they could refuse to pay. You can head off these kinds of problems by clearly communicating from the beginning.
- Late fee – Another good way to encourage clients to pay those invoices on time is with a late fee. Usually you tack on a small fee whenever you don’t receive a payment on time. At the very least, it’s a little compensation for your time chasing down invoices.
- Consistent communication – Make sure your clients are receiving your invoices. If a client usually pays early and they suddenly don’t, it doesn’t hurt to send a reminder. Also, clearly spell out due dates. Don’t make your client have to calculate your terms.
Not getting paid can be crippling to small businesses, so don’t go there. Take action now to prevent disaster later.