Getting paid by regular clients

I’m glad that people like my financial buffer business post the other day. I don’t think people write enough about the business side of what we do and from what I hear, not enough about it gets taught at universities either. I’m not a very good businessman, truth be told, but I have learned a few things over the years, so I thought I’d start sharing them.


Thomas (not his real name) emailed me this week:

I’ve been freelancing for a year. I have a client who gives me regular work. When we first did business, I charged him a deposit (30%) and the balance on 30 days. Recently, as the work’s got more frequent, I don’t charge a deposit and invoice him when my work’s done. This has been fine, but over the last few months he’s been slower at paying and I’m getting a little concerned at how much money he now owes me. What do you do in similar circumstances?

I recognise Thomas’ situation. I’ve had similar experiences and I suspect you have too. There are several issues in Thomas’ question, so let’s break them down.

  • Asking for money before you start work
  • Agreeing with your client when work’s complete
  • The period between sending an invoice and it being paid
  • Terms for on-going regular work vs one-off projects
  • Minimising the risk of not being

I’ll deal with the first three points another day, but what about Thomas’ main concern that his client is building up a large amount of debt. How can Thomas best deal with that and protect himself without spoiling his relationship with his client?

Figuring out how to handle long-term clients is actually a lot harder than dealing with people on a one-off project basis. When you haven’t worked with a person or company before, they haven’t established a trading history with you, so you don’t know what kind of client they’ll be or how professional they’ll be at paying. That’s why having a contract, like my Contract Killer, is essential, as is asking for money up-front and not starting work until you’ve received a down payment.

(Aside: Not starting work until you’ve received a deposit is an great way to start a professional relationship with your client. Last year, on a Friday morning, my wife telephoned a large, international organisation and reminded them that unless we deposit was paid, we couldn’t begin their project on the following Monday. We were paid within two hours.)

When you’ve worked with people more than once, there’s always a temptation not to issue a new contract or ask for a deposit. You know they were good for the money last time, right? What could possibly go wrong? Well, plenty, and you owe it to yourself, to your client and to the relationship you have with them, to keep things professional.

Repeat contracts before each and every piece of work can be time-consuming. So if you’re at a stage in a client relationship where this is becoming an issue, instead of relaxing your terms, agree a different set of terms with your client.

Ask them to sign another form of contract, one that’s geared towards regular working rather than being project specific. (Project specifics can be handled by other forms of documentation.) This new contract should include:

  • Your rates and payment terms
  • Professional standards
  • Lead times (between you receiving a brief and ‘starting’ work)
  • Rush rates when normal lead times are ignored. (Don’t forget, a client’s lack of planning shouldn’t ever be your problem.)

Even if you’ve established a good relationship with a client, when you’re working with them on a regular basis and you’re often starting a piece of work before you’ve been paid for the last, it’s vital that you limit your financial exposure.

It might seem old-fashioned, but agree a credit limit with your client. That limit will likely vary between clients, but a good rule of thumb is to make sure that no one ever owes you more than a week or two’s work. Let a client know when they get to within two day’s work rate of their limit and remind them that all work will stop until they’ve pay you up to date. Never, without exception, allow a client to exceed their credit limit.

If you’re working with the same client across multiple projects, it can be hard to keep track of invoices, raising them and knowing which ones are paid and which ones are outstanding. Chasing outstanding invoices is time consuming and can easily get in the way of you doing whatever it is you do to earn money. Does this sound familiar?

You: Invoice 30 is still outstanding.

Client: What was that one for? — I can’t find a copy of that. — Can you send it again?

To make things simpler for everyone, ask regular clients to buy a block of your time. Two weeks is a good rule of thumb. Your client should pay in advance and you should track the time until the block runs out. As with their credit limit, remind your client when their time is due to expire and ask them to purchase another block.

I think it’s fair to say that having conversations with clients about money doesn’t come naturally to most people. You’d think that asking for money that you’re owed, because of your hard work would be easy, but it isn’t. I’ve never been very good at it, so it’s important to limit the number of times you need to have those uncomfortable conversations. Do this by being unambiguous and professional about your terms.

If you are, if you work out a system and stick to it, there should be no reason why you, or Thomas should be concerned about your regular clients paying what they owe you.


 
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