Today marks the first guest blog post in a new series I’m running on the OFS blog. Each month, a guest blog post will be featured that is relevant to your freelancing business success, providing tips and tricks to make life easier.
The first guest blog post is one I’m excited to share because I know a lot of freelancers struggle with getting payments from clients on time.
Veronika provides some great ideas about when you should follow-up with a client and how to minimise issues arising.
The payment process can be a stressful one for any entrepreneur. This is true for both products and services. The capital (regardless of how large or small this may be) invested in your business must be controlled for attaining better return and stability.
A freelancer usually struggles between getting paid on time and retaining a large number of profitable clients. A healthy balance has to be created between generating more business and receiving on-time payments. A reasonable number of profitable clients is essential for running a profitable business. Bad debts, on the other hand, can adversely affect your cash flow and regular payment cycles.
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Late payments may either cause interest losses or unhappy vendors. Vendors (the people you owe money to) may charge a higher price if not paid on time. This may adversely affect the profitability of your freelancing business, after all, you can't continue to work for free and neither can your vendors...
When To Follow Up For Payment?
Effectively following up on outstanding client payments is the key to getting paid in a timely manner. Before strategising follow ups, freelance business owners must have a payment policy in place. This should be mentioned on all the invoices being sent out.
The terms and due dates can be different for different clients. The credit period may vary from industry to industry—this can range from 7 days to 60 days.
If a client pays on time, then there is no need to follow up or ask for payments. These type of clients will either pay before or on the due date. Such clients should be offered the best possible discounts. Extra effort must be made to strengthen ties with these types of clients (these are the ones you want to keep).
If for some reason, a good client does not pay on time, it shouldn't worry you. A gentle reminder email can be sent to this client informing them that the payment is due and pending. If the response in this case is prompt, then there is no need for a follow up call. But, in case there is no reply to the reminder email, up until 2 days, a phone call follow up is a good option to find out the reason for the delayed payment. If you've got a good working relationship with this client, you can expect the payment to be cleared within 2 working days of this follow-up.
If a client has a poor payment record, you will need to be more vigilant and proactive about payment follow-ups (or consider whether you continue working with them).
A good way to minimise this type of issue arising is clearly stating on the invoice that a late fee will be added. By using an online software like Invoicera, this can be applied to all invoices.
The fee should be a small percentage of the total amount (could be 5-10%). Payment reminders must be set in advance so that automatic emails are sent out to the client one day before the due date, on the due date and afterwards as well.
Cash discounts (where applicable) and timely payment rewards could be offered to such clients through payment follow-ups on the due date of the invoice. Regular follow ups are important to get timely payments from such clients.
Late paying clients must not be provided any of your further goods or services. They should be offered more only AFTER their existing debts are cleared.
In case a late paying client has not cleared invoices for more than 2 months after a due date, an appropriate collection agency must be hired to collect payments. If the payments are still not cleared, then appropriate legal action must be taken against the client. A conversation with your Accountant or CPA is also a good idea at this point.
Keep Clients on Their Toes
You should know how to foster good business relationships without losing out on payments. By following the strategies outlined above, and keeping on top of any issues as they arise, will ensure that your freelancing business remains profitable.
Following up payments, on time, is an art and should be implemented strategically for better results and timely payments. And to stop you from pulling out your hair!
What are your thoughts about this first guest blog post? Have a question for Veronika? Leave them in the comments below!