When you went to buy your computer, you paid for the computer in advance. When you went to the dentist, you paid your $5000 bill on the way out. And yet, when it comes to collecting money in your own business, you're running up against a big, bad wall.
So how do you get paid on time?
In March 1999, I went to the doctor with a massive headache. I was also getting a dull ache in my chest. And the headaches and pain wouldn't go away. The doctor said I had a pretty nasty case of high blood pressure. The reason? Some of my ‘best' customers weren't paying on time.
Some bills were three months old…
Some bills were celebrating their first birthday! And with each passing day, I'd get more and more frustrated and dejected. I felt I really needed the work, and would do the work with great gusto, only to slip into a loop of delayed payments. My high blood pressure was literally caused by the mounting number of dues owed to me.
Then I changed the rules
As you should do too. See, the biggest problem with payment, is simply the fact that you don't have rules. If you have rules, then at least the client pays attention to those rules. If all you're going to do, is do what everyone else does, then the client treats you like everybody–or in some cases, like a nobody.
So the first step is to make the rules
When you sit in front of a customer, the following needs to be sorted out:
1) The specs of the project
2) The time frame of the project
3) When the customer is expected to pay the bill
4) The penalty for not paying on time
If you're dealing with a product
1) The specs of the product
2) The time frame of delivery
3) When the customer is expected to pay the bill
4) The penalty for not paying on time
For example:
1) XYX company will create a website for you that enables you to upload your own information
2) The website will be up on 15th August 2005
3) The customer is expected to pay the full amount by 12th August 2005. Or in stages of the project
4) The penalty for not paying on time is that the website will not be delivered to the customer + other interest penalties.
I know what you're thinking
The customer is not going to bend over backwards to play by your rules.
Well, humour me.
Set the rules at the first meeting. Get the customer to sign off on the rules. And once the customer realises that you won't play ball, unless they keep to the rules, they'll keep to the rules.
Yes, even the big companies play ball
Your services and products are bound by the contract you put together. The key is the penalty. Many suppliers I've worked with in the past, have had a torrid time collecting amounts from clients, till they put the penalty clause in place.
Even the most dumb accountant sees the penalty factor and will stick to the rules. Make sure you keep your part of the agreement too. If you say payment must be made before delivery, then don't deliver unless you're paid. If you break the rules, clients learn really quickly and know you won't keep your word.
Set the rules. Keep to the rules. And you'll spend a lot less time at the doctor, as I did.
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I disagree. It is much better to provide the customer an incentive to pay in a timely manner by providing a discount for on time payments and charging interest on late payments.
Withholding products or services is never a good idea unless you are uninterested in future business or word of mouth referrals.
Customers, like children, need to be given a set of ground rules and held to them, but they also need the fleibility and they will reward you for treating them with respect. So yes, set and keep to the rules, just not these rules.
I’m sure we agree to disagree, but we’ve never given discounts for our product or services and we’ve done just fine. I think discounts tend to devalue your product or service anyway.
And I’d rather not work with a client who doesn’t respect an agreement. The client who is going to withhold my money is just in the business of driving me crazy and I’d rather find clients who’d respect our mutual position.
I’m not saying you need to be rigid, but flexibility is a dangerous concept. How flexible is flexible? Also I think that if you are indeed charging late payment fees then there’s where’s the respect? If they were respectful you’d never need to run into a situation like late payment.
I’ve had enough of late or non-payment to last me a lifetime. Therefore the crazy terms. Try them. They’re not as disrespectful as you think.
I have to agree with you Sean, I’ve had a situation where a reputable firm took 8 months to pay me for a job that was meant to be up in two months. By the time I got my final cheque payment, what i could think of was how frustrating the job was and what a waste of time.. Reason for this is because I did not set the rules prior to working with client because I wanted to get the contract and forgot to be a business woman. But it was a lesson worth learning…
I have clients pay 50% up front and 50% upon delivery. Or I bill them weekly by the hour. I’ve only had one person stiff me for a smallish amount so far … And I did have someone who was very late, but he told me upfront he was going to be slow in paying and I was slow at the time, so I did the job anyway. For web site reviews, I get 100% in advance. Overall, I’ve worked with great people. But I know the day will come when I have to get tougher … I liked your model, Sean. Thanks, for sharing.