Doing the work and waiting and waiting (AND WAITING) to get paid is probably the #1 source of stress for solopreneurs. Instead of being ahead financially like you anticipated when you landed the contract, you sink deeper into debt, forced to pay your corporate accounts payable out of your personal line-of-credit, wondering how much longer you can wait for accounting to get around to your invoice.
The conundrum is how to collect your money without resorting to threats or sending it off to a collection agency. It is especially problematic if the bad debt is from a client that you hope to work with again. Too much pushiness and you risk damaging the relationship; not enough and your invoice continues to languish at the bottom of the priority pile.
How to Collect Bad Debt Without Resorting to Sending Nasty Grams
#1: Start With Clear Expectations — Discuss your payment terms upfront when you first negotiate the contract. It’s okay to let them know that you are a small business and that long payment terms hurt you financially. Big companies forget individual families and mortgages rely on that invoice they stamp for payment next month.
#2: Ask for a Deposit — Make it your corporate policy to require a deposit for projects over a dollar value or when the total amount owing exceeds a certain amount. It’s standard practice for companies to cap the credit made available to their clients based on the financial resources of that client.
#3: Send Your Invoice Promptly — Never wait to send an invoice! As soon as the work has been completed and approved by your client, send them an invoice thanking them for the work. This increases your chances of being paid promptly as they likely have budgeted for it. Wait too long and somehow that money magically disappears.
#4: Schedule Regular Reminders — Have your accounting system set up to send out regular statements so you stay top of mind. This also eliminates that possible excuse of “I never received your invoice”. If they indeed missed it on the first go-round, chances are they won’t when they receive your statement 30 days later and because it’s sent automatically, it is perceived differently than a nagging call or email from you.
#5: Watch for Warning Signs — Pay attention to warning signs that your client is in financial trouble. Unfortunately, it isn’t always easy to spot, but trust your instincts if you sense something is wrong and take action to have them clear up the outstanding balance.
#6: Incentivize Early Payment — Instead of punishing late payment with interest and late penalties, offer clients who pay promptly an early payment discount. If you are concerned about this discount impacting your bottom-line, work it into your pricing structure so you are in essence including the late payment penalty in the regular price and rebate it when they pay on time.
#7: Offer Multiple Payment Methods — Make it easy for people to pay you by accepting different types of payments, including credit cards, PayPal and e-transfers. If your invoice or overdue payment reminder includes an easy way to pay using a credit card or a PayPal account, chances are higher that it will be paid promptly.
