Closing deals with new clients is usually cause for celebration.
After all, more clients means more money, right?
Not if your client doesn’t pay invoices on time. Late paying clients (or clients who don’t pay at all) end up being more trouble than they’re worth. Over the years, I’ve perfected my sixth sense that sets off alarm bells whenever I have the feeling a prospective client will be careless when paying invoices. When this sense starts tingling, I’ll do extra research on the prospect before signing a contract to get a better idea of the likelihood that I’ll get paid on time.
Here are three warning signs of clients that may pay late, and how to encourage prompt payment.
Warning Sign #1. The Business Can’t Afford You
Sometimes prospective clients talk a good game, but when it’s time to pay the invoice they don’t have the cash.
If you offer a B2B product or service and are considering doing work for a business that brings in hardly any revenue, expect there to be a chance you’ll have trouble getting your invoices paid on time.
How can you tell if a business makes enough money to pay you?
I learned this sweet trick several years ago from a post on Making a Living Writing.
Carol Tice is the founder of the site and suggests going to the Manta or Hoovers business directory to see how much a company makes before committing to work with them. For start ups, you can check Angel List as well.
Tice recommends working with businesses who make at least $1 million in revenue ($10 million or $100 million is even better). If you offer marketing related services specifically, these larger companies probably have a more substantial marketing budget. Although Tice blogs for a freelance writer audience, this tactic can be helpful to anyone who owns a business offering B2B services or products. You should think twice about whether a business with slim revenue can truly afford services at the price you quote.
Pro Tip: If you’re actively looking for new clients, the Manta, Hoovers, and Angel List directories are good places to scout out new businesses to pitch.
Warning Sign #2. The Client Hesitates to Give a Deposit
It’s smart to collect an initial deposit for a portion of your work before you start unless you’re in a unique situation where you highly trust the client.
Deposits can help you gauge the seriousness of your clients and it gives you some leverage. There are two deposit scenarios that should make you feel suspicious — if a client refuses to make a deposit altogether or if they take a very long time sending you the deposit after agreeing to the terms. Both can be an indicator to me of how the client will respond when I ask for money later. Problems with getting the deposit starts off the relationship with tension over money which can be a red flag.
Catch their hesitation to pay early on and you can politely break up with the client to avoid the hassle.
A deposit is a sign of a client’s commitment, but it’s also important because collecting one means your client has skin in the game. At the very least, you have a deposit for compensation if they pay some money upfront and then fall off the face of the earth after you complete the work.
Warning Sign #3. The Client’s Business Track Record is Less Than Stellar
Major businesses and big players in various niches are usually well known enough that you can get feedback from others on how they do business before working with them.
For example, as a freelance personal finance and entrepreneurship writer, I know many peers who have worked with the same clients. When I’m in the courting stage with a new client I’ll see if anyone I know has ever worked for them. If so, I’ll ask how reliable the client is with making payments.
We’ve all heard the quote from Maya Angelou — “If someone shows you who they are, believe them the first time.”
This goes for clients, too.
If a peer tells you they’ve had trouble receiving payment from a client you can probably expect the same treatment. Head to sites like Glassdoor or the Better Business Bureau if you don’t know anyone who’s worked with a client that you’re considering working with. Employees and customers can give you some insight into how the business operates. Customers complaining about general customer service issues and more specific problems like refunds may be cause for concern. Take disgruntled employee stories with a grain of salt, but any comments about payroll should pique your interest.
How to Encourage Prompt Payment
As much as you try to avoid bad seeds, you may find yourself caught up in a business relationship with someone who pays chronically late.
Here are steps you can take to encourage faster payment:
- Make it ridiculously easy to pay you. Research shows clients make payments 11 days faster if they can pay with a credit card. Offer credit card as a payment option and you may see invoices processed sooner.
- Send invoices when you say you will. When you’re behind on sending invoices it can give clients the impression that they can also pay whenever they feel like it. Uphold your end of the agreement by sending invoices on the date agreed upon in your contract.
- Follow up on invoices right away. Don’t let unpaid invoices fly under the radar. Make sure your clients are aware that they owe you money by sending reminders.
- Hire an assistant to do your dirty work. Hire a virtual assistant to act as your bookkeeper if you run a micro-business and feel awkward hounding your clients for payment. The virtual assistant can play Mr. or Mrs. Bad Cop while you sit back and collect the money.
Final Thought
Clients with poor paying habits are a headache for business owners, but you can avoid getting burned by some pesky non-paying clients with due diligence. Before jumping head first into a contract because the money looks good, consider your client’s ability to pay, what the client’s track record of payment is, and whether they’re willing to give you a deposit for security.
Cut ties if you get the feeling that a client is someone who may give you the run around. It’s better to come to that conclusion now than to do a job and find yourself begging for payment on month’s old invoices later.
