CollBox Guest Post: Fight Your Fear of the Collections Process
July 4, 2018
Over the years, I’ve known a lot of freelancers and business owners, small to large, who didn’t get their invoices paid on time.
Too often, an invoice due in 30 days would go delinquent to 45, 60 and even 90 days. The issue wasn’t the quality of the work performed or even the fact that the detail on the invoice was questionable; it was more a matter of XYZ company deciding it just wasn’t going to pay the invoice on time.
According to a conducted by Freelancers Union that surveyed 5,358 U.S. freelancers, one in every two respondents had trouble getting paid, with 71% citing problems collecting payment at some point in their career. In addition, 43% of respondents had trouble collecting payments for businesses with 1-5 employees, aka microbusinesses.
How can you be more aggressive and fight your fear of the collections process? The focus shouldn’t be on anger or defending your work. Instead, you have to approach the process with the overriding mantra that you deserve to get paid, plain and simple.
Here are some ways to combat the challenge of getting paid before your hit collections.
Invoice Regularly and on Time
Some owners invoice when the job is done or even on a weekly basis. However, if accounting isn’t fun for you, consider invoicing monthly if your cash flow doesn’t suffer. Either way, in order to set clear expectations, put it in writing up front in your engagement letter or agreement when you will invoice.
Make it Super Simple to Get Paid
Nowadays, it’s uncommon to get paid with a paper check and so much easier to get paid electronically either by ACH or credit card. Discuss these options with your client and remember that you’re saving them money by avoiding paper checks and postage. If you’re too small to accept credit card payments and/or don’t want to pay the fees, turn to some of the free online payment services.
Your goal is to reduce your days sales outstanding (DSO), a term companies use to ensure their delinquent accounts receivables don’t affect cash flow and forecasts. No matter how large your business is, the same concepts still apply, so find ways to be smarter with your invoicing:
- Ask for a deposit, especially if your client is a startup. Fifty percent of a month’s work is typical.
- Avoid net 30. According to , one of the best ways to protect yourself against overdue payments is to use shortened terms such as net 21 or net 15.
- Include late fees. Again, it’s all about setting expectations with your client, so ensure you make it clear up front that you’ll include a 2% or even a 5% late fee if an invoice is past due.
- Protect yourself. Include language in your contract that states that the client will be responsible for all reasonable collection and/or attorney’s fees should their account become past-due and be referred to a collection agency.
Don’t Be Afraid to Follow Up
If you’ve exhausted any regular tactics, including asking for payment if an invoice is even five days past due, it’s time to step up your efforts. Again, don’t approach the conversation with words you’ll regret later. Instead, get in your client’s head and help AP realize you need to get paid on a regular basis.
For example, if an invoice is late, ask your client this simple question, “Does the bi-weekly payment schedule work for you?” When they say “Yes, of course it does,” say, “I’ve noticed that your invoices have been past-due. Can we make an effort to pay these on time? It will ensure I can give you the best service moving forward.”
Sure, this can be seen as somewhat forward behavior but, more often than not, it will serve as a wakeup call.
Become AP’s Best Friend
Whether you’re getting paid by a large company or an individual you contracted with, there’s no harm in killing them with kindness and some love. I knew a freelancer who sent a tin of brownies to each of her AP s as a gesture of goodwill—and wow did it help to expedite payment.
Know Your Work Is Good
Above all, remember your work is good and deserving of payment.
If you find yourself in the 60- to 90-day timeframe, it may be time to move the payment to collections, and even if this becomes the case, you know you won’t do any more work or spend any more of your energy on a deadbeat client. Move on to higher value work that is appreciated and rewarded.
Time to Collect? Don’t Fear the Collections Process
If it’s time to send a past-due account to collections, it doesn’t have to be a confusing or scary process.
Look for referrals in your network for collection agencies that are ethical and effective for your line of business and make sure to shop around for a competitive rate.
Collection agencies typically charge a percentage of dollars collected and rates vary based on factors such as age, amount past-due and type of debt (whether your clients are consumers or businesses).
If you don’t want to deal with the headache of finding a trustworthy collector yourself, CollBox is a tool that can find the right collector for you and spare you the paperwork by sending all the necessary details straight from your FreshBooks account.