How to Make Sure You Get Paid as a Small Business Owner
Getting paid and on time is high atop most small business owners' worries. Don't get paid and you can't pay your own bills, putting your company's future at risk.
So what can you do to reduce the risk of a non-paying or slow-paying client? There are several strategies you can take to head off trouble before it happens.
Research your client
Spend a few minutes finding out what you can about your potential client's payment habits. A quick-and-easy Google search of the company and owner name should reveal any recent issues, such as lawsuits, if there are any. You can also call your local Better Business Bureau and run a business credit check to determine the odds of a client stiffing you later.
Set expectations up front
If you clearly communicate your policies for payment before you do the work, you'll weed out clients who claim they just “didn't know," says Josh Swisher, president of Northface Construction.
Some customers may not pay you because they're experiencing their own cash flow crunch while others may try to take advantage of you, he says. Spelling out your payment terms in advance gives you the option to stop providing services until they bring their account current.
Use a contract
Even a simple document that lays out what you'll do and what your customer will pay and when is typically enough to encourage prompt payment. Have your customer sign it to indicate they understand their responsibilities. If you end up having to go to small claims court to demand payment, a signed contract will be strong ammunition.
Get a deposit or down payment
Ask for an upfront payment that at least covers your costs, so that if you fail to get the balance paid, you'll break even. That may mean asking for 25% or 50% of the total, depending on your typical fees.
Some small businesses go even further. Alex Sheehan, copywriter and content strategist, requires payment in full upfront. “I won't do any work on the project until that payment comes through. It puts chasing on the client instead of on me," she says.
You may turn off some clients with this approach, but if you're in high demand, it completely takes the stress out of getting paid.
Make paying you easy
“Accept all forms of payment through every avenue possible," says Heather Sahagian, who owns two successful beauty salons but closed a third business due to payment issues. Accept cash, check, credit cards, Venmo, and PayPal, among other payment forms.
There are many apps you can use to manage your business, and invoicing is no exception. to Sheehan uses Wave to set up automatic payment reminders so she knows when payments are owed and past due, as well as when money has been received. When money hits her bank account, she knows she has “the green light to kick off the project." A platform like Zoho can also simplify invoicing and ensure bills are going out in a timely manner.Daniela Mazal, owner of Old School Pilates, set up an automated membership model for her services in order to avoid payment troubles altogether. Clients sign a contract and supply a credit card to be held on file. They agree to be charged monthly for a given period of time, such as six months. After that period, they are on a month-to-month basis but must give 30 days' notice to cancel, Mazal explains.
Offer an incentive to pay early and a fee for paying late
Sahagian recommends offering customers a discount for paying in full early and charging higher fees on balances owed. Some businesses tack on a late fee for payments that don't come in as outlined in the signed contract or that require repeated invoicing.
Work through a recruiting platform
Platforms like Topcoder will collect payment from clients in advance and set aside monies in escrow until the project is completed. That protects both the service provider doing the work and the client, who wants to be assured the work will be delivered as promised.
The bottom line
Although there are many tactics you can use to prime clients to pay on time, communicating frequently about how much is owed and when can help alert you when there may be a problem. If you know about payment issues, you can take steps to temporarily protect your company's cash, such as by paying business expenses using a credit card.