Editor’s Note: The following piece by Alice Fugate is part of our collection of “classics”–articles that stand the test of time no matter how many technologies come and go.
Question: I love everything about being self-employed–except for waiting to get paid! My paychecks never seem to arrive on time. Sometimes my clients forget to send my invoices to Accounts Payable or the invoices get misplaced; other times the process just bogs down and takes forever. Whatever the reason, I’m stuck waiting for checks that don’t come. How can I get my clients to pay on time?
Lay the groundwork for a happy fiscal relationship at the very beginning of each project. A little planning, plus a judicious dose of effective communication, will pave the way for timely payments.
Clarify Project Terms in Writing
What is the most important thing you can do to facilitate payment on your new project? Put it in writing.
Important issues to confirm in writing include:
- A detailed description of the project and your role
- A detailed description of what you will produce
- A project schedule, including deadlines for your client as well as you
- Confirmation that your client will provide “reasonable access” to the staff, resources, and information you’ll need to complete the project on time
- Fees and terms of payment
- A schedule of payments
- Reimbursed versus unreimbursed expenses
Do this by drafting a printed contract or Letter of Agreement, especially if the project is for a new client. For longtime customers, I’ve been known to create a detailed email note that outlines all of these issues. If you send your agreement electronically, though, be sure to print a copy and save it in your files.
What if you must sign your client’s contract and it doesn’t go into detail on these issues? (It probably won’t.) No problem; just draft a separate letter that summarizes these crucial points and ask for it to be part of your contract. If the letter confirms discussions that you and your client have already had, there should be no reluctance to include it in your agreement. If your customer balks at including fees and a schedule of payments in your contract, consider this a huge red warning flag (but that’s another article!)
The more you clarify these issues in writing, the better. Not only does it look professional and increase your chances of getting paid promptly, it also ensures that you and your customer agree on what the project entails.
Before you start work, make sure you have completed all the paperwork necessary to process your invoices. On one project, my newly-promoted client didn’t realize that Accounts Payable required a boilerplate contract before it would issue any checks. Result: I ended up waiting three months for my first payment.
Get Paid Before You Begin
Many independent contractors advise obtaining 25 to 50 percent of total compensation before starting work. That way, even if your client is a little slow to pay, you won’t go hungry. An advance can also be a helpful clue to your client’s solvency or lack thereof–after all, if the company has trouble coughing up this first payment, do you really want to work for them?
Will you be paid by the hour? Assess an initial fee based on your estimate for the entire project. Or, bill up-front for your first invoice amount–whatever the client would pay you for completing the initial stage of the project.
The bottom line: However you calculate your advance, be sure to include it in your written agreement.
Plan for the Unplanned
Do you ask clients to pay interest on late checks, or to compensate you for altering the project schedule? Better put it in writing. Nothing cools a warm relationship faster than springing a surprise fee halfway through a project: “Oh, by the way, we’re going to charge you for changing that due date.” On the other hand, including this information in your initial agreement signals that you’re serious about getting paid.
So, here are some more items to put in writing:
- How do you handle late payments? Some contractors include a clause such as “I reserve the right to hold work if payments fall behind schedule.” Schedule your delivery dates so they follow payments you should have already received. That way, if the checks stop coming, you will still have work to hold. Other contractors specify a penalty or charge interest on tardy checks.
- What happens if the project is rescheduled or canceled? You might build in a prorated fee or percentage of your total fee, based on how much of the project you have completed.
- What if your clients miss their deadlines? Maybe your contact fails to get you the information you need in order to finish. In the meantime you’re left hanging, uncertain whether to accept other contracts. Consider charging a “project management fee” to compensate you for scheduling delays. This has the added advantage of motivating customers to be prompt.
- What if you finish ahead of schedule? This is a good thing, right? Not necessarily. My colleague Susan agreed to write a manual and be paid in three installments: One for first draft, one for second, and one for final copy. However, she did such a great job on the first draft that the company decided they didn’t need another–and they refused to pay the rest of her fee. Today, all of Susan’s contracts specify that she receives her total project fee, even if all the drafts aren’t needed.
After you’ve signed the contract, continue to stay in touch. Always confirm important discussions about the project in writing, especially any changes or new developments.
Bill Frequently
How often should you bill your client? In a word: Frequently. Many consultants bill at one- or two-week intervals. That way, if payment problems arise, you’ll learn about them quickly before you have invested significant time and labor in the project. Don’t build a backlog of unpaid work.
Do, however, date your invoices and specify due dates. Don’t say the check is due “in three weeks” or “mid-December”; specify, for example, “December 15, 2003.” I give each invoice a unique identifier, usually the project name followed by the number of that particular invoice. This makes it easier to trace the invoice in the company’s accounting system, should that (Heaven forbid) become necessary.
What If Your Client Leaves Town?
Sometimes payments are delayed because your usual contact leaves town for a meeting or vacation. Meanwhile, your invoices languish in the inbox.
Prevent this by determining ahead of time who will take over this responsibility. Who will approve your invoices and sign your checks in the interim? You might even ask your contact to pay you in advance or to put a rush on your invoice.
No Check. Now What?
The tips we’ve discussed so far will nip many payment problems in the bud. However, I will be the first to admit that sometimes you can plan and specify ad nauseam–and your check will still be late.
Here’s what to do: Contact your client immediately, the day after the check was due, and inquire into the status of your payment. At this point you have to decide whether to follow through with such measures as charging interest or holding work.
Well-intentioned people may assure you, “Don’t worry, it’ll arrive in a week or two.” Politely explain that you need a definite date by which you can expect payment. Confirm the new date in writing (email works well for this.) If the check doesn’t arrive by that date, call again.
If your contact really doesn’t know where your check is or seems reluctant to investigate, offer to contact Accounts Payable yourself. Appeal to your contact’s assistant, who may be able to cut through the red tape and speed up the process for you.
How do you motivate clients to pay if you’re awaiting the final installment and you have no more work to hold? One solution is to retain the copyright until after you have received the final payment. Place your own copyright statement on the title page; then, after receiving the final check, send a revised copyright statement reflecting your client’s ownership. Another strategy is to send only hard copy throughout the project and hold the electronic files until you’ve received the final payment.
Some contractors suggest nagging Accounts Payable instead of your contact person. This works if Accounts Payable is the source of the delay. If your contact keeps forgetting to forward your invoices, however, or if the accounting staff needs an extra nudge, you may still need to involve your client.
Keep It Cordial
It may not be easy, but try to keep all discussions cordial. Don’t accuse, threaten, or make personal remarks. If at all possible, avoid references to attorneys and lawsuits. Once relations deteriorate to this level, it will be impossible to repair them. Legal tactics should be your last resort.
One consultant got rapid results when she helpfully offered to “forgive” a client’s debt–meaning she would report it as a bad debt on her tax return. Translation: Her client would have to report the amount as additional (i.e., taxable) income. Her check arrived shortly thereafter.
Is your client local? Find out when your contact is in the office and drop by unexpectedly to pick up your check. Announce why you’re there in front of other people, so stalling you would make your client look bad.
If you really can’t get anywhere with your usual contact, appeal to that person’s superior. I know of one writer who finally got paid after she wrote a letter to the president of the company. Needless to say, this will not make you popular with your contact, but by this point you probably don’t care.
If none of this works, you could hire an attorney to send a threatening letter. Another option is Small Claims Court, which tends to be faster and less bureaucratic than filing a lawsuit. Note, however, that like the name says, Small Claims deals only with small awards, usually no more than a few thousand dollars. Check your state’s guidelines for the maximum award in your state.
Learn from Your Mistakes
As you read this, maybe you’re pondering a nightmare project you’ve suffered through. I empathize; I’ve suffered through a few myself.
But put those bad memories to good use. Take a moment to recall your worst project. Were there warning signs–instances of poor communication, bad decisions, sloppy accounting–that you wish you’d paid more attention to? Could you have done anything to forestall the problems and get paid on time? Did you go ahead and sign the contract even though your instincts screamed “Don’t do it?”
Remember, even the worst experience can be worthwhile if you learn from it. How will you do it better next time?
Getting Paid: Top Tips
- Clarify all aspects of the project in writing–what’s expected of you and what you expect from your client. Don’t rely on oral agreements.
- Confirm all changes to the project in writing.
- Decide how you will handle contingencies–late payments, schedule changes, last-minute requests–and put these in writing, too.
- Obtain a percentage of your fee before starting the project.
- Bill frequently and keep copies of all invoices.
- Date your invoices and specify due dates for payments.
- Schedule your delivery dates to follow payments you should have already received.
- If possible, retain the copyright or hold electronic files until after you’ve received the final payment.
- If a check is late, follow up immediately.
- Focus on finding and keeping good clients who pay on time.
