6 Tips for Collecting Payments While Maintaining a Positive Customer Experience

Collecting payments from clients is an essential part of running a profitable business – but that doesn‘t make it easy or comfortable. A study by Freelancer‘s Union found that 71% of freelancers have struggled to collect payment from a client at some point in their career. And it‘s not just freelancers – according to Atradius, 39% of all B2B invoices in the Americas are paid late.

Late payments can have a huge negative impact on your business, slowing your cash flow to a trickle, hindering your ability to grow, and causing undue stress as you wonder if you‘ll be able to cover your own bills. As painful as it is to chase down overdue invoices, it‘s a crucial skill that all business owners must develop.

Fortunately, by putting some key strategies and systems in place, you can become highly effective at securing the payments you‘ve earned while still giving your clients an exceptional experience. Here are six tips to help you master the art of collecting with care:

1. Establish clear payment terms and policies upfront

Having a detailed contract or agreement that clearly spells out all your payment terms and policies is the foundation of successfully getting paid on time. Your contract should cover:

• The exact services/products to be provided and any associated charges
• When payment is due and what the penalty is for late payment
• Accepted payment methods
• Your policy on things like payment plans, deposits, refunds, etc.

Some common payment terms you can choose from include:

• PIA (payment in advance) – full payment is due before work begins
• Net 10, 15, 30, 60, 90 – payment is due in full 10, 15, 30, etc. days from invoice date
• 50/50 – half upfront, half upon completion
• Weekly, monthly or quarterly payment schedule

It‘s wise to have a contract lawyer familiar with your industry review your standard contract template to ensure your terms will hold up legally. Once you have a solid contract, make it non-negotiable that clients sign it before you start any work. Having everything in a signed agreement protects you if you later need to pursue formal collections or legal action.

2. Invoice promptly and consistently

When you complete work for a client, it‘s crucial to send the invoice immediately (within 1-2 business days at most). This sets the expectation that you require timely payment for your work. It also gets the clock started on your payment terms so you can accurately track when a payment becomes overdue.

Your invoices should clearly state:

• Unique invoice number for tracking purposes
• Itemized list of services/products provided
• Total amount due
• Due date
• Accepted payment methods
• Late payment penalties
• Contact info and procedure for billing questions

Use the same branded invoice template for all your clients so they can easily recognize your invoices. Make sure the design is clean and simple, highlighting the most important information.

If you‘re not already, consider using cloud-based invoicing software like FreshBooks, Harvest, or Zoho Invoice to streamline your billing. These tools let you create professional invoices in minutes, set up automatic billing schedules and reminders, and securely accept online payments.

3. Offer convenient, flexible payment options

People have come to expect a lot of choice and convenience when making any kind of payment. The more payment options you can offer your clients, the faster and more reliably you‘ll get paid.

Some of the most popular payment methods for small businesses include:

1. Credit/debit card (preferred by 54% of customers)
2. ACH bank transfer (26%)
3. PayPal (10%)
4. Mobile payment – Apple Pay, Google Pay, etc. (4%)
5. Cash or check (4%)

While there are fees for accepting credit cards (typically 2.5-3.5% per transaction), it‘s usually well worth it for the cash flow benefits. Research by Fiserv found that 74% of invoices paid by credit card are paid on the same day the invoice is received!

To start accepting credit cards, you‘ll need a merchant account with a payment processor like Stripe, Square, or PayPal. If you have clients on retainer or subscription plans, these processors also support recurring payments which save you from having to invoice every month.

Another option to make payment easier for clients is to allow payment plans, especially for large projects or costly services. Many clients will appreciate being able to spread out their payments over time while you still get money coming in consistently. Just be sure to charge an appropriate financing fee for the privilege.

4. Send polite payment reminders

No matter how buttoned up your payment policies and invoicing are, you‘ll still occasionally deal with overdue invoices. When this happens, it‘s important to send friendly reminders to clients to encourage them to pay promptly.

A typical reminder schedule might look like:

• 1-2 days before due date – Reminder that payment is coming due
• 1-2 days after due date – Notice that payment is now late with copy of invoice
• 5-7 days late – Firmer request for payment specifying late fees accruing
• 10-15 days late – Phone call to client to discuss the issue and arrange payment
• 30 days late – Final demand letter explaining legal action will be taken

When crafting reminder emails, keep the tone firm but polite. Assume the unpaid invoice is an honest mistake or oversight. Something like:

Subject: Gentle Reminder – Invoice #1234 Past Due

Dear [Client Name],

I hope you‘re doing well. I just wanted to follow up on invoice #1234 for [project name] that was due on [date]. I haven‘t received payment yet, so I wanted to check in and make sure you received the invoice okay. I‘ve attached a copy again here for reference.

Could you please let me know the status of this payment? I‘m happy to answer any questions you might have. If you need a little more time, just let me know so I can plan accordingly.

Thanks in advance for your prompt response. I appreciate your business!

Best regards,
[Your Name]

If email reminders don‘t resolve the issue, a phone call adds a more personal touch that‘s harder to ignore. Keep the call concise and positive – express concern, ask if there‘s anything you can do to help facilitate payment, and try to get a firm commitment on when they‘ll be able to pay. Take notes during the call and follow up with an email summarizing any agreed upon payment plan.

Throughout the entire collection process, be sure to maintain detailed records of all communication with the client (emails, calls, letters sent, etc.). This documentation will be important if you end up needing to escalate the situation further or take legal action.

5. Have an escalation plan for very late payments

When you have a client who still isn‘t responding or paying even after several reminders, you need a plan for how you‘ll escalate the situation. Decide ahead of time at what point you‘ll take more serious action – for example, when the invoice is 30 days past due or when the total unpaid balance exceeds a certain threshold.

At this stage, you have a few options depending on your relationship with the client and how critical their business is to yours:

• Pause all work for the client until payment is received. You might offer to resume work after receiving a good faith deposit against the outstanding balance.
• Offer a one-time discount or waive late fees if they pay the full balance within 24-48 hours. Sometimes a small compromise is all it takes to get them to pay up.
• Send a formal demand for payment letter. This should recap the work completed, the total amount owed (including late fees and interest per your contract terms), a firm deadline to pay, and a warning that you‘ll take legal action if payment isn‘t made. Send this via certified mail so you have proof of delivery.

If you do decide to pursue legal action like small claims court or hiring a collections agency, be aware that the process can take significant time and money. Carefully weigh the costs and benefits before going this route.

6. Know when to let a client go

As awful as it feels to admit defeat and give up on an unpaid invoice, sometimes it‘s necessary for the financial health of your business. If a client has broken promise after promise to pay, dodges all your calls and emails, and is dishonest about why they aren‘t paying, they‘ve proven themselves to be a lost cause.

Continuing to do work for a non-paying client in hopes they‘ll eventually come through is usually throwing good money after bad. It‘s better to cut them loose and free up that time and energy to find new clients who will value and pay for your work.

When ending a client relationship over non-payment, be professional but direct in your communication. For example:

Dear [Client Name],

Over the past [time], I‘ve attempted to collect payment on the outstanding balance of $[amount] for the work I completed for you (see attached invoices). Despite my repeated requests, I still haven‘t received payment from you.

I have no choice but to inform you that I am terminating our contract for services, effective immediately, due to non-payment. Please be advised that your account is being sent to a collections agency to recover the balance owed.

Additionally, per section X of our signed agreement, I reserve the right to charge a late payment fee of 5% per month on the outstanding balance until paid in full.

Please mail a check or money order for the full balance of $[amount] to:
[Your Business Name]
[Address]

I appreciate the opportunity to have worked with [Company Name]. I wish you the best in your future endeavors.

Sincerely,
[Your Name]

Once you‘ve cut ties with a delinquent client, be proactive about filling the lost revenue. Let current and past clients know you have bandwidth to take on new projects (they may have referrals). Double down on your sales and marketing efforts to attract new clients. And critically evaluate what you could improve in your payment policies and client screening process to avoid similar situations in the future.

You can excel at collecting payments AND customer service

Like it or not, collecting on invoices is a key responsibility of running your own business. But that doesn‘t mean it has to come at the expense of providing an amazing customer experience. By being upfront about payment expectations, invoicing consistently, making it convenient for clients to pay, and staying on top of outstanding balances, you‘ll be well on your way to a healthy cash flow without sacrificing your client relationships.

Of course, putting these practices into action takes some trial and error to get right. Start by implementing one or two of these tips in your billing process. Track the results over the next few months. How have your average collections time and aging receivables improved? Do your clients seem more or less satisfied with the payment experience?

Continue to tweak and optimize your collections process until you find the perfect balance of assertiveness and service. It‘s a learning process for every business owner – but one that pays dividends for your bottom line and your peace of mind.

Now I want to hear from you! What are your biggest challenges when it comes to collecting payments from your clients? What strategies or tools have you used to make the process better for both you and your customers? Let me know in the comments below!