Small Business Hassle: Late Payments and How I’ve Dealt With It

by Debbie D. on 2008-03-0617

If you’re thinking of becoming self-employed soon, you may find that the exhilaration of being your own boss gets tempered by more than a few hassles — including this one I’m about to describe to you.

Being self employed has so many advantages I’ve lost count. What I haven’t lost count of is how difficult it can be sometimes to get paid for the work you do. I’m sure big businesses face the same problem with customers who are late making payments, but I doubt it affects them the same way that it does the small business owner. Once you’re your own boss, you need to worry about how to build, maintain and collect the income you’ve earned. If you’re new to this set up, then you may want to read on about a common issue that plagues the small business entrepreneur.

The Hassle of Late Payments

I recently had the pleasure of dealing with a lady who is a business owner herself. She’s quite successful, with two assistants who help her with the day to day tasks of the business, along with an office full of employees. She’s so successful, that I’m unable to contact her directly, but instead, must go through her assistants.

get paid on time; late payments

When it comes time to receiving payments from her; I typically receive an email from her asking what the amount is, followed by a message assuring me that she’ll make payment that day. Well guess what — the payment doesn’t arrive, and a day later I get the runaround from her assistants, where I ultimately end up in the middle of a confusing and convoluted email message exchange that involves further discussion of owed money, demands to complete the work faster and requisite foot dragging.

Let me think about that a moment. For every project, I might spend an additional 2 or 3 hours working with the assistants just to wrest payment from them; and they want to know if I’ll be able to work any faster? What do you think, should I put a rush on their projects when I waste precious work time sending and resending invoices and explaining to three different people how much is owed?

How I Plan To Get My Money On Time (or Show Me The Money!)

So here’s how I’m protecting myself. I’ve now started a new policy that requires that payment on projects be made in full before I embark on a new task. As a small business owner, I can’t afford to wait 90 days for project payments, and can’t justify spending hours chasing down the money owed me. I expect this to protect my cash flow, which is necessary for the survival of any business, but particularly that of a small business.

Don’t get screwed! Other ways you can avoid the late payment blues:

#1 Put your policies in writing. Make things formal and contractual.

#2 The best way to work with problematic clients is to ask for full payment up front. Charge 100% payment at the start of the project. For everyone else, request a reasonably sized initial deposit.

#3 Tack on finance charges or late payment fees to late payments, but spell this out as part of the contractual terms before doing any work.

#4 Build the risk of late payments into your pricing.

I’ve seen business owners work with their clients in various ways. I’ve seen those who seal their deals with just a simple handshake. Others are much more formal, presenting with contracts that are drafted and signed. Small businesses tend to tow the line between these two approaches. It makes sense that the nice, casual nature of a handshake based on long term trust with good clients may need to be reevaluated for newer, less dependable clients. How you can make your clients show you the money is one of those big lessons you learn as you get your feet wet as a newly minted small business owner.

Post by Debbie D.

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 14 comments… read them below or add one }

Steward March 6, 2008 at 3:17 pm

I also heard/saw that it works really well if you shout “Show me the money!” into the phone while dancing.

Tom March 6, 2008 at 3:43 pm

What sucks is that when you have a payment due from a client and you keep bringing it up to them, they tend to get mad and go elsewhere, that is ONE frustrating thing but other than that, I would never trade in my self-employment powers 😉

brent March 6, 2008 at 7:25 pm

30% upfront
40% upon completion of work: first samples/presentation
30% upon final delivery.


Mrs. Micah March 6, 2008 at 7:43 pm

At my last job I remember how difficult it was to pay anyone. I was that assistant, you see, only I was working for a multinational corporation, but the area office (think like The Office, but smaller).

It required sending invoices (along with special “pay this” forms) up to Canada and then having the Canadians pay it. But it also required having a higher manager from another office sign off on them. I felt bad for small businesses because I knew how important this was for them. At the same time, I was only able to send off invoices once a week and had no control over when the people were actually paid. I could just tell them when their invoice had been processed, when it had been mailed, when the package was received (we had tracking) and then that we could call the Canadians and check if they’d like.

RacerX March 6, 2008 at 9:59 pm

Easy…payment terms. Net 15 days – 5% to 30 days, 5% per month ther after. Put it on the I/O the bill and every other piece that you send them. If you have to go to small claims court you will get the interest to the date the judge decides for you as well.

Why fight for your month…make it cost them. If they miss the first time let them off. Second time terms. Third time jack the terms to 10%+.

Easy…and get paid fo the hassle

Kaleb March 7, 2008 at 9:21 am

Why are you getting emails asking “how much” from your clients? You need to invoice them, with payment terms on the invoice… easy. Word-of-mouth is not the way to communicate the whats and whens of the billing side of your business.

Silicon Valley Blogger March 7, 2008 at 9:47 am

I am here to voice an opinion on this great guest post by Debbie Dragon, one of contributing writers to this site.

My own approach here varies as well — if we’re dealing with a small amount of money, I usually go the more casual route and conduct business on the basis of a virtual handshake. But when bigger amounts are involved, then I work to have more formal terms in place. With online businesses sprouting up everywhere, owners of such businesses, especially in the freelance service area may find themselves wondering how best to negotiate terms with their clients. But IMO, sending them an online contract shouldn’t be an issue, and should give them the impression to take you, as a service provider, seriously.

I’m not entirely sure about the details behind the client story was (that was described in this post), but I’m guessing there’s more to it than we think.

her every cent counts March 7, 2008 at 2:47 pm

This is frustrating as an independent contractor. It almost (but not entirely) makes me want to give up the freedom of contracting and get a full time salaried gig. Almost.

Cape Number Plates March 7, 2008 at 2:50 pm

25% upfront, 25% after and agreed milestone and 50% upon completion. Thats how I work it. if it’s a long project you could always bill monthly.

DebtKid March 7, 2008 at 10:54 pm

This type of work (admin, collecting on invoices, etc) can really stifle the small business owner. Especially if you’re in a creative field, dealing with past invoices is a killer.

I learned early in my business that keeping on top of this wasn’t my forte. I put one of my employees on it (ie, bugging people when they are late, or their CC declines), and have never been happier.

For the freelancer, I would recommend hiring a freelance assistant even for a few hours a month to keep on track of your invoices. It will keep your cashflow flowing, and you sane!

RacerX March 8, 2008 at 2:46 pm

For my blog I haven’t done that many Invoices, but if you have a PayPal account you can send a PayPal invoice from your account and they will track it for you. Great service.

Funny about Money March 8, 2008 at 11:48 pm

Having been stiffed several times as a freelance writer (one reason I don’t follow that line of work anymore), I came up with an amalgam of approaches suggested by other commenters:

1. Develop a price list of services
2. Establish a project’s cost clearly, up front
3. Pay for single projects is 30%/40%/30%, and I don’t start till I get the first installment.
4. Pay for lengthy ongoing projects is biweekly.
5. Deliver completed work on time.
6. Send statements promptly upon completion of a segment of a single project or every two weeks.
7. Do not deliver a chunk of work before being paid for the previous chunk of work.
8. If a client proves to be a deadbeat, fire ’em and find someone else to work for.

(sigh) People are such artists at taking advantage of each other!

Small Business Loan-er April 2, 2008 at 1:26 pm

It’s tough being the little guy. Businesses have no trouble paying the rent, taxes, utilities, internet providers, their lawyers, media outlets, etc but the one-man-shop supplier gets “Well, we haven’t been paid yet on that job so we’ll get you as soon as we can. How are you coming on our new project?”. You gotta be tough little guy!

Debbie Dragon June 30, 2008 at 3:34 pm

Thanks for the comments, guys. I did actually have a payment plan initiated for the client I was writing about- and formal invoices with the amounts on them and when each payment would be due. When it wasn’t paid as indicated, I would then attempt to get in contact (only to get in touch with her 2 assistants, located in 2 different countries…) Anyway, even with the signed agreement and formal invoices, it didn’t stop her from emailing to ask me how much she owed, though!

Luckily, I don’t find this to be the norm in my freelance writing business. This just happened to be one difficult lady!

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