How to get your clients to pay their invoices
In the interest of getting going quickly, you can develop your React web application using CodeSandbox, a fantastic browser-based development environment.
Software developers today are utilising their free time to earn extra income on the side, commonly referred to as a side hustle. Also, especially here in the UK, developers are setting themselves up as Limited companies and billing their clients through invoicing, instead of working as a permanent employee. Either way, essentially, you and your business become a third party. Third parties provide services in the same way a plumber, builder or any other trade would provide services to businesses.
In my experience, most clients pay their invoices fast, and stick to agreed payment terms. Unfortunately, however, not all do. Some companies deliberately defer payment, and flout payment terms, because they can, to an extent, get away with it. As a permanent employee, you get paid regularly (usually monthly) with no exceptions. Your company has an obligation to keep staff happy. This is less true of service providers.
This post is an amalgamation of my personal experience as a contractor and freelancer chasing payment, as well as my wife's experience as a Credit Controller, as person who chases clients for payment of outstanding invoices on a daily basis.
Agree payment terms with your client before providing services
Before you start providing a service to a company as a freelancer or contractor, you should ensure a formal service agreement (SLA) is in place.
The SLA should clearly define, in simple terms, the following;
- When you will be paid. Typically, weekly or monthly, if you are charging on a per hour basis. If you get paid on delivery, you should agree payment milestones, where payment is made on delivery of a certain feature/set of features.
- How you will be paid (PayPal, bank transfer, cheque).
- How your client should invoiced. Be sure to clarify the trading name of the business, and the official address. Otherwise you will encounter delays in payment.
- Where you send the invoices. Ideally get a point of contact, and ideally deliver the invoices in person in written form (or get a manager to champion this for you!).
- Clients often like timesheets along with the invoices. When you deliver a timesheet, be sure to describe in a few simple words what work was carried out on each day.
Having the above terms/processes in place, you should never, in theory, need to chase for payment.
Alas, however, theory and real world do not always work out.
Typical reasons for non-payment
Once you contact your client, you need to establish why payment has not been made. Some common reasons include;
They did not receive the invoice. Give the client the benefit of the doubt. You should confirm with the client where and when you sent the invoice. You may find that with big companies, the invoices have to be sent to a relevant department or person for authorisation. Send the invoice again, and to a specific person and department.
Invoiced in the wrong name. You may find that the wrong company name has been entered onto the invoice in error. This will be down to the person who placed the order at the time. It could be to do with miscommunication or an error on the client's side. Re-issue in the invoice with the correct name.
Funds are not available because they themselves have outstanding invoices. This is common in small companies but unfortunately you must get past this issue and advise the client that payment is still due regardless.
Invoice is being queried. You will need to discuss this query with your client and come up with some kind of resolution. Whether that be to arrange a part/full credit as goodwill or to apply a discount on their next order. Depending whether their query is legitimate of course and that you agree.
No Purchase Order Provided. This is a common issue with the larger companies as they must keep track of all the purchases made. To avoid this problem all together, it is worth asking if they require a PO number on their invoices at the start. Be aware, not every client will tell you about any of these problems as they will expect you to chase them. You may not find out that there is an issue until the 30 days are up.
How to be tactful with your clients
Having unpaid invoices, and therefore outstanding monies, can be frustrating, especially for small businesses/freelancers.
Ultimately, retaining a strong relationship with your clients should be of paramount importance. Being overly aggressive can quickly sour a relationship and damage future prospects of conducting business with that client again.
Be tactful, and ensure that everything you say to the client (outstanding balances, due dates, interest etc) is 100% accurate to avoid any potential confusion further down the line.
How to approach chasing clients
This is the step-by-step process that I follow when chasing any client.
Attempt 1: First contact
Start off by calling the client on the phone. In the event of no answer, simply leave a message explaining that you were calling to discuss their account.
Follow this message up with a copy invoice and a compliment slip saying;
Dear Mr/Mrs __________,
I enclose a copy of your invoice, which fell due for payment on __________. I hope this has just been overlooked in error and kindly ask for the invoice to be paid by return.
Kind regards, __________.
Be professional, and nice, on the first attempt of contact. You may not get any response or you might receive funds the next day. You will not know until you try.
Attempt 2: Follow up first contact
Wait one week. Should your client not pay/return your messages, you should get a little bit firmer and press more for a result.
Try calling them again, if still no response leave another message saying that you had tried previously calling last week and had sent them a copy invoice in the post. Kindly ask for them to return your call to discuss further.
Follow this message up with a 1st reminder letter;
Dear Mr/Mrs __________,
I attempted to contact you via phone on__________ and sent a copy invoice to you in the post. Currently I am not aware of any reason as to why your invoice would not be paid. In our last letter, and the voicemail left today, I have asked that you kindly contact us to discuss so we can resolve this matter.
However, if the invoice has purely been overlooked in error please can you arrange payment within 5 working days of this letter.
You have every right to request payment for invoices which you are due and you don't have much choice but to chase them if the client is not communicating with you. If a client ends up paying and complains to you for chasing them (which they probably will), just explain to them that it is company procedure to chase debt over 30 days old and to resolve any disputes which may be holding them up.
Attempt 3: Threat to cease trading
It's very disappointing when you reach this point with still no contact from your client re payment. Now you can begin to get heavy in order to get results.
Try calling them again, if still no response then leave another message saying that this is your third attempt of contact and as you are no closer to retrieving payment, you are left with no other alternative but to escalate the issue further.
Follow this message up with a 2nd reminder letter;
Dear Mr/Mrs __________,
I am writing to follow up on previous correspondence as I have had no response from you and are unable to reach you to discuss. As your invoice is now currently __________ days old and the payment terms which we agreed are __________ I am afraid we have no other alternative but to escalate the matter further if the invoice is not paid by end of play __________.
If this invoice is not paid as requested, I will no longer provide you with any services, I will not attempt to contact you again and will refer the matter over to my debt collections team where you will incur extra interest charges and fees. In order to avoid this unnecessary action taking place, I urge you to either contact me to discuss or issue payment in full by end of play __________.
I would suggest you to send this letter on a Monday and give your client until the Friday to make the payment. That way really, you are giving them the weekend also to make the payment so they will have no excuse.
Don't be scared to send this letter, you are in every right to do so and you have done all you can to contact the client.
What should you do next?
If you still have not been paid after all your efforts, I highly suggest you stop working with this client.
- Put a stop on the clients account
- If they pay, depending on their reasons you could release this stop but that's up to you
- You need to make a judgment call on whether you trade with this client again
- Get together your case; a. A copy of the invoice(s) and any backing that goes with it b. Correspondence agreeing to the service you supplied and billed for c. Any contracts the client may have signed with you d. Copies of all the letters you have sent e. List of the times and dates of when you have called and left messages
The reason why you need to gather all this information, is so that you have it to hand if;
- The client responds to your "legal" letter and makes a complaint
- The client responds to your "legal" letter and refuses to pay/denies agreeing to any service
- You decide to pass the matter over to an external debt recovery agency
So, once you have got all your facts together, you can then send one last letter;
URGENT ATTENTION REQUIRED
Dear Mr/Mrs __________,
Despite my previous attempts to contact you, I am disappointed to find that your invoice remains unpaid. In my previous letter I informed you that if the invoice was not paid in full by the end of play __________ I would be left with no other alternative but to escalate the matter further.
Therefore, I are writing to inform you that no further work will be provided as the issue has been taken out of my hands and referred to a debt recovery agency who will be in touch shortly to discuss. Please direct all further correspondence through to them going forward.
If it comes to this, it is probably best to bring in a debt recovery agency or seek legal advice from a solicitor about taking the issue to the small claims court.
Developers are more commonly earning money through supplemental work, and from starting their own businesses. As a business, you charge your clients through invoices on an ad-hoc basis. Clients, generally speaking, pay quickly and pay well. Unfortunately there are a minority of businesses that are not quite as forthcoming with payments, so we outlined several steps you can take to speed payment whilst maintaining good relations.