It can be frustrating when you have completed work and you have to wait for your client or customer to pay. It is even worse when they don’t pay and you must take legal action, so I have put together some tips to help avoid this:
- Have a solid contract in place
Make sure you have a solid contract by a lawyer in place before starting any work. It should include your payment terms and the repercussions if they are not followed like interest being applied etc. This will make it easier to enforce in court later if needed. It is well worth paying a lawyer to construct a contract for you once, that you can then keep reusing.
- Take full or partial payment up front
Depending on your type of business, you should be able to at least take partial payment for work up front. If you are a recurring business, I recommend taking full payment up front at the start of each month. If you are a project-based business, I recommend taking 50% up front, 25% when the work is halfway completed and the final 25% after completion. This ensures you won’t be stuck with a huge receivable to collect.
- Use an app to help collect payments.
You can use an app like Plooto to set up PAD Agreements with your clients. Even if you are project-based, you could use Plooto to set up the collection of all the agreed upon payments as you can future date payment requests. Using an app like this means you don’t have to be waiting on your client to write a cheque or e-transfer you and the money will get deposited straight into your bank account.
- Send a statement and enforce your terms
If your terms are Net 30 and the customer still hasn’t paid after 30 days, make sure you apply interest (if in your contract) and send them a statement right after the 30 days are up. Most people will respond to this as likely they had just forgotten; you can also then choose to waive the interest if they reply straight away to pay.
- Send a Demand for Payment Letter
If your client has not paid or responded to your requests for payment, send a Demand for Payment Letter. This letter should outline the Invoice numbers, total amount owing, and tell them that you will be taking further legal action if they do not respond within 10 business days (or a time of your choosing). This will often encourage them to pay as they don’t want to deal with a lawsuit. Unfortunately, if they do not respond to this, the next step would be proceeding through the Civil Resolution Tribunal or Small Claims Court.