Reply To: Timely Payments

[Jim McClain]

It has always been my opinion that, if you are going to operate as a business, you need to do business much like other businesses do. Walk the talk, so to speak. You should have a “terms” policy that is provided to each client on the invoice (small print at the bottom, if you want). You can make your own terms. Mine are “5% 10 days, 30 days net.” This means the client can take 5% off the invoice, if they pay within 10 days. If they don’t pay within 10 days, the total amount of the invoice is due in 30 days.

None of my current clients have deducted the 5%. I do not write on the invoice how much the discount is, I just give them the opportunity to make the deduction. When I had my flooring business for 17 years, I did this the same way. Several contractors did take the deduction, but many did not.

Another business policy has to be what you charge for interest, if the bill is not paid on time. Mine is 2.5% per month, compounded. This means each month the balance due is charged 2.5% additional. If the invoice is 100.00 and not paid at the end of the month, another invoice is sent with 2.50 tacked on. If it isn’t paid the next month, the 2.5% is figured on the 102.50 they owe, which is 105.06. I do not take on additional work from that client until their bill is paid. If they don’t pay within 90 days, I file small claims. If they don’t show up for the court date, I win by default, they must pay me within 90 days and I can file a lien on their earnings/taxes, plus court and administrative costs. I’ve only gone to small claims once and the client paid the same day as the judgement.

You have to have rules and you should not make a rule you don’t plan to enforce. You can, however, accept a late payment that didn’t include the interest, if it is in your best interest for continued work from the client. But don’t tell them ahead of time you will accept payment for less than what you are owed.

You can find all kinds of documents online for people in the web development business. Download some just for ideas on how you want to run your business. Adjust as you go, but do be the business person your clients think you are. It will get you respect and more work.

Now, you can continue to work payday to payday, as long as that isn’t more than a week, but good clients won’t come knocking on your shingle if that’s how you operate. Save a little each time until you have a reserve account built up that will carry you several months. Then you can afford to use standard invoicing policy – and offer that discount incentive for paying on time.

Again, this is just my opinion.

Jim