One of the toughest challenges of being self-employed is getting paid. When you work for someone else, the paycheck typically arrives every two weeks whether you complete the project or not. But when you own your own business, there’s no one to cut you a check.
For that reason and others, it’s critically important that you collect on your invoices in a timely manner. Here are ten ways to ensure that you get paid what you’re owed, when it’s owed.
- Write good contracts. Verbal agreements aren’t enough; even small businesses need written contracts. Set out your payment terms in writing before you do any work or ship any product. Start work only after you have a signed contract that outlines the project and states when you will be paid.
- Request payment up front. If you make it worth their while, some clients will pay you in advance. However, you won’t know unless you ask. Offer your clients a 10 percent discount for paying in full at the time they sign the contract.
- Shorten your billing cycles. Most businesses extend credit for 30 or 60 days , but it is perfectly acceptable for you to shorten that cycle. If you cannot wait that long, come up with different terms. As long as your customers are aware of and agree to your terms, you can establish whatever timeframe works for you.
- Standardize your invoices. Make sure your invoices include the following information: the client’s name, the project you are working on, the purchase order number, the due date, and your company’s mailing address. It should also include information about what penalties will accrue if payment is not made on time.
- Join an industry group. There is power in numbers, and you don’t have to wage your payment battles on your own. There are literally hundreds of industry-specific associations, such as author’s guilds and trade associations for accountants. These groups can lend power and credibility to your efforts to collect funds. Check your local chamber of commerce or log onto the SBA’s Web site to see if there’s a group for your industry.
- Begin collections proceedings. If you don’t receive payment by the invoice’s due date, call your client and diplomatically point out that their payment is late. The key here is to be friendly but firm, and to start collections proceedings early — immediately after the invoice is past due.
- Hire a collection agency. If late-payers don’t respond to your requests for payment, you may need to hire a professional. Collection agencies routinely keep between 10 and 50 percent of the money they collect, but getting some of what you’re owed is better than getting nothing at all. This will probably cause irreparable damage to your relationship with the client, but that might be okay; after all, you probably don’t want to deal with a known credit risk.
- Take them to court. If the collection agency doesn’t succeed, you can take a deadbeat client to small claims court. Different states and jurisdictions have different limits on how much money they will award, so make sure you research your state’s laws and procedures before you pursue legal action.
- Consider barter agreements. Sometimes when getting started, you may be able to negotiate a fair and equitable agreement to exchange services. For example, if you are an accountant, you may agree to exchange services with a writer who could write your Web site and brochures. In turn you do his or her taxes.
- Take payment seriously. You work hard for your clients, and you deserve to be paid for the work you do. Never feel guilty about asking for what you are owed. Always be firm but fair, and you will engender respect and loyalty in your customers.