5 Strategies for Getting Clients to Pay on Time

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When late payments are the rule and not the exception, the stability of your agency is at risk. Find out how to maintain cash flow with our 5 tips for getting clients to pay on time, every time.

Late payments can jeopardize your entire agency.

A whopping 37% of invoices are paid late, and 16% aren’t paid at all, according to a Due.com study. That means that you can plan to apply only a portion of your revenue—the remaining 47%—to improving and scaling your agency.

If you don’t have a system for making sure clients pay you on time, you’re limiting your growth and sacrificing almost half your revenue.

Late payments are frustrating, but don’t take it personally. Your agency’s service is just one of the dozens of expenses that your clients have to keep track of.

Agencies get paid after the work is delivered, so clients don’t have much incentive to pay a bill the minute it’s received. Many will put off a bill or forget about it altogether while your bottom line has to bear the burden. 

Here are the billing practices that will get you the constant cash flow necessary to improve and grow your agency.

1. Stipulate Payment Terms in the Contract

business man signing contract

A contract can be an agency’s kryptonite. If you aren’t careful with your terms, they can lead to mismatched expectations at best, and a ruined relationship at worst. You need to make sure you cover everything that can go wrong, and ensure you get paid for every hour worked–even in extenuating circumstances. 

To remove openings for miscommunication, your contract should include:

  • Services you’re providing. Include an overview and scope of each service you’re offering so that clients know what they’re paying for. If you’re including a Statement of Work (SOW) that further explains deliverables and timelines, it should be referenced here. 
  • Cost of services. If you charge hourly, that cost should be broken down. If you’re offering an estimate, price adjustments and the process for making them should be expressed here. 
  • Payment logistics. Make it clear when invoices will be received and how much time clients have to pay them. Also, be sure to note all acceptable payment options.
  • Late payment penalties.  People are hardwired for loss aversion, so use a late fee as a way to incentivize clients to pay on time. Most agencies charge between 1% and 1.5%: just enough to encourage payment, but not enough to  aggravate clients when mistakes are made.  
  • Nonpayment penalties. Include a period of time (typically 2 months) that a client has to make a payment before you discontinue work. 
  • How terminated projects are handled. Make it clear how much notice you need and how much you should be compensated for. 
  • Name specific point people for the project.  When it’s unclear who’s responsible for what, an environment for miscommunication is created. To avoid this, clarify who the main point of contact is on your team and your client’s team. 

The first part of your contract tells clients what to expect from you, and the latter part tells clients what you expect of them. Don’t leave out the nitty-gritty details that explain edge cases such as terminated projects. For a healthy, mutually beneficial relationship, both sections have to be explicit so that clients get the high-quality work they expect and you get the timely payment your agency expects.

Don’t leave out the nitty-gritty details that explain edge cases such as terminated projects. For a healthy, mutually beneficial relationship, both sections have to be explicit so that clients get the high-quality work they expect and you get the timely payment your agency expects.

Pro tip: Take the time to go over your contract with your client–don’t assume they’ve read each clause themselves. 

2. Send Detailed Invoices

5 Strategies to Encourage Your Clients to Pay on Time

Think of the invoice as a reinforcement of the most important parts of your contract. Every time your clients are looking through their bills, they might not remember the due dates or the late fees–so make it clear on every invoice itself.

Add urgency by including:

  • The due date. Invoices that include a due date are 8 times more likely to be paid on time. Name a specific date instead of the general phrasing “due upon receipt.”
  • Late payment penalties. Financial penalties for late payment will disincentivize clients to delay payment.  
  • One recipient.  Send it to one contact whose stipulated in the contract so there’s only one person with ownership over the bill. 
  • Payment options. Give clients several options so that they can pay using the method easiest for them. Offer them the option to switch payment options in every invoice in case they decide that another option works better for their workflow.

Rather than using invoices as payment reminders, use them to nudge your clients to take action immediately so that you can expect payments on a reliable schedule.

Pro tip: Include a 2% discount for clients who pay within two days as an added incentive. It’s a small fee to pay for getting the clients who would normally put off a payment to pay promptly.

3. Increase Communication Around Invoices

Business man looking at watch

Whether your invoice arrives in an email or a physical mailbox, it’s too easy for it to get buried in the crush of daily tasks.  Increase communication around these invoices with early reminders, follow-ups, and thank yous to keep them front of mind for your clients.

At the beginning of your relationship with your client, discuss the best ways to communicate with them. Let them choose how they’d like to receive reminders about upcoming payments.

You can suggest:

  • SMS. Agencies shy away from texting their clients because it feels intrusive, but studies have shown that over 60% of consumers wish more business would use SMS. As long as you don’t overuse this channel, clients will learn to see it as an extension of your services–just like they do with their SMS bank notifications or Uber alerts. You can use a service like Sonar to send SMS updates straight from your computer.
  • Voice. It might seem old-fashioned, but some clients prefer a monthly phone call to remind them that a bill is coming up. A phone call is a great way to have the important things–such as upcoming invoices cut through the noise. You can set up automated reminders with cloud voice services like Aircall.   
  • Email. While one monthly email can get buried in an inbox, every follow-up bumps that email back to the top of the inbox. You can automate an email follow-up to go out every two days with an email extension such as Followup.cc.
  • Cloud billing software. Software like FreshBooks lets you keep track of all past and future invoices online–and automate reminders to be sent when a bill is coming up. 

It doesn’t matter which communication channel or channels your clients prefer, as long as you’re frequently communicating with them about payment. Have them opt into one or all of these communication channels to realign expectations.

Pro tip: Integrate your team’s favorite software into one workflow. For example, you use Teamwork Projects as your projects hub and integrate your accounting and email platforms, so you can send automatic payment reminders as soon as a project is complete. 

4. Encourage Clients to Set Up Automatic Payments

Simpsons overdue payment GIF

 

Most of your clients aren’t missing your bills on purpose–they’re thinking about a dozen other things. It’s hard to remember to log in on the same day every month or at the end of every project.

Set up auto pay for your clients so payment will automatically be transferred from their bank account. This will spare them the hassle of having to log in every month and spare you the awkward money conversation with a valuable client.

Do your research to ensure your chosen online payments system handles payments securely–any security breach will compromise all your client relationships. Services like Stripe or Google Wallet are reliable names that your clients will recognize and trust to handle recurring payments.

Pro tip: Create a webpage where clients can see past, current, and future payments, so they can check in on their bills whenever is convenient for them. Software like Blinksale does this automatically for you–and it can be integrated into your current project management software for even more efficiency.

5. Move Clients to a Retainer Agreement

Handshake GIF
In theory, a lot of security comes along with retainers for both, clients and agencies. The agency gets paid before any work is done, eliminating the possibility of not being compensated for their efforts, and the client knows exactly how many hours of work a project will take, eliminating any kind of confusion surrounding the scope of a project.

In practice, however, clients are wary of retainers, believing that they’re contracts that favor agencies.

Most retainers have a “use it or lose it” policy, so clients fear that they’ll be paying for more than they’re getting. And it’s a valid concern–as you work through several iterations, the scope of a project can change.  Your clients might ask you to put in extra hours, or you might finish
ahead of schedule.

To get buy-in from your clients, you need to make the retainer advantageous for both parties involved:

  1. Start by offering a discount for first moving to the retainer contract. Something as small as 5% can incentivize clients who are on a tight budget to give it a try.
  2. Offer credit towards future work if the project doesn’t take as long as anticipated. 
  3. Stipulate that overtime work will be charged at your typical hourly rate.

These are all points you should discuss with a client as soon as you suggest a retainer, and they should be clearly laid out in your retainer contract. 

Pro tip: Be transparent about how you count hours. Use time-tracking software and let your clients know about it so they don’t doubt the numbers that show up on the bill. 

Use Clear Communication for On-Time Payments

Many agencies spend hours setting prices for their services while shortchanging essential systems and practices that encourage rapid payment.

These tips about creating better billing practices all revolve around one idea: good communication will make your clients more likely to pay you on time.

Be clear on what you’re going to provide and how your clients will be charged–and then make it easy for them to send you payment.

You’ll be surprised at how quickly these efforts create a consistent cash flow!

Does your business use any strategies that help encourage on-time payments? Let us know in the comments.

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