John Macpherson shares his advice on how to ensure you get paid on time and what to do if a payment is late
Cash flow is crucial to the daily running of any business. It could be a part time stall that you run on a Saturday morning, or it could be a Fortune 500 firm. When you cannot afford to pay the bills for a length of time then you are in trouble and if it continues you will be out of business.
In web design we trade our time. That time is then billed for. People also bill us for their time or the product(s) we have bought from them. Over the course of the business your aim is naturally to have more incoming than outgoing. Nothing startling so far then, but we have gathered in the simplest terms possible how businesses work financially.
All agencies and freelancers have a time frame on their invoice that the payment has to be received by. (If you don't, then I stress that you do this right now). This is between seven and 30 days from the invoice being sent. You can choose any time frame here but I suggest one week rather than four. So this article could end here then if ... everyone received their payments within those dates.
Unfortunately in reality this doesn't always happen.
In larger businesses you may never meet the person who pays you. In smaller firms you are more likely to have and may even be the very person you have been dealing with. In most situations it's a lot easier to get payments on time from smaller businesses. This is because you have made a connection with them and they should at least feel a little responsible. In a very large organisation the internal people or people you have been working with may not even have met their colleague in the accounts department. In short, to some larger organisations your invoice is just a piece of paper.
So what can we do to make sure we are paid with the terms we have stated?
- The first thing is to verbally agree the payment terms. It's all very well having them stated on a contract but proceed in a conversation the person or people to have them consent that there should be a problem. You can also go one step further than that.
- State a specific date. In a web project you will have in most instances a timeframe and dates of milestones. If there are many milestones and payments, it wouldn't make sense to go through many but something like: “We aim to have the project completed by the 15th of January 2012 and within our terms of 14 days that payment should be made by the end of January.” Now there are no hard and fast rules what to say and it may vary from client to client but by verbally agreeing the terms and date(s) it strengthens the agreement. Expectations have been set.
- This isn't always required or recommended but you can make contact with the client a few days or a week before the payment is due and mention that the invoice has been sent and get confirmation they received it. Naturally they will then acknowledge that there's an action to be taken.
So what then if the payment is late?
- The first step is to keep your cool at all times, a sarcastic or witty call or email doesnt help the situation or your relationship with client. There is normally a genuine reason why the invoice is outstanding. The accounts person may have been off ill or a technical problem with the system. A simple reminder is normally the nudge that resolves the issue.
- If you have not heard back from this reminder within three or four working days, then a phone call is suggested to speak to someone in person to see if there indeed is a problem.
- Late fees and fine terms on the invoice are common and not a bad idea but reinforcing them is something that may dilute your good relationship with the client. It may also be the further nudge they need to pay you. Be wary of this action however.
- By all means try and avoid going down this route and this is most definitely your last option, but web design and development teams normally have full control over the web hosting and taking down the site can be known for you to receive immediate payment. You really do want to be confirm the situation with the client before you even think of this. It may be they have had health problems or their business is in serious financial trouble. If they are genuinely in trouble, then you may never receive the money if they are declared bankrupt. If it's a temporary issue try to come to some kind of agreement of part payment over a number of months. This is better than nothing or them indeed going out of business.
I will stress again in some situations there are genuine reasons for why payments are being withheld or delayed. If there's one thing to take from this article, it's that by communicating clearly by documentation and verbally there is a far less chance of things going wrong.
These are also a few other points to keep in mind:
- When paying people yourself, pay early and well within the terms. This strengthens your relationship and trust with your providers and contractors.
- All of the above is going on the assumption that you have fully delivered what has been asked for and the specification has been met or even better exceeded! This article is invalid if you have implemented poorly and not delivered your side of the bargain.
- You should have gathered a minimum of three months outgoing in your bank account. This is contingency and very important to have. No extravagant expenditure whatsoever until this threshold can be maintained. (Good general business rule).
- If you have any doubt of the potential client before commencement, phone and/or search around.