Following Up On Payment Terms

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6 minute read

When I published my post on payment terms last week, I wasn’t expecting it to kick up such a storm. The topic seemed to particularly resonate with the copywriter community, where large numbers of freelancers are bound to extended payment terms with clients of all sizes.

In response, many of the tweets discussed issues of late payment and non-payment by clients, and reading these was a pretty sobering experience. It certainly made me feel incredibly fortunate to work in a sector where a significant proportion of my work revolves around deposits and milestones — all taking place before files are handed over to a client.

My original post was written to explain to clients why my terms are seven days. As I wrote last week, these tend to be small businesses where there isn’t usually a finance department. If there is, it’s often one person, and there’s usually room for manoeuvre.

It became apparent from the various Twitter threads that many freelancers are dealing with larger companies where there is no hope of such a short turnaround time. To make matters worse, many demand long payment terms and then fail to pay on time.

What can be done?

Aside from the stories of long-lost payments and clients taking the proverbial, there were several pieces of useful advice. The topic of handling payments for freelancers has been covered at great length, but it’s worth restating some of these, particularly for newcomers to the freelance game.

1) Use a contract
On Andy Clarke’s Unfinished Business podcast, he frequently, and somewhat jokingly, states that anyone who doesn’t use a contract is a “moron”. It’s hard to disagree with this sentiment.

That podcast is recommended listening if you’re interested in this topic. It’s aimed at web designers and developers, but the principles are absolutely transferable. Start at the beginning, you won’t regret it.

This is where you can state your payment terms and confirm what you’re agreeing to do in exchange for the agreed fee/estimate. If your client has different payment terms, it’s the perfect chance to iron this out upfront.

Without a contract, you have almost zero security. This might be ok for a job that would only take a couple of hours, but how much work are you willing to risk losing, or performing for free?

2) Take deposits
Your ability to determine and take a deposit will depend greatly on the type of job. For regular or retainer-based work this will be less easy than anything that’s project-based.

If it is possible, make sure you take a deposit up front and the final balance before the work is handed over. I recently broke this rule for the first time in a long time, for a client I’d worked with before. I took the commencement deposit but released the site before receiving the final balance. That final payment took four weeks to come in…and it was a rush job! Never again.

3) Use invoicing software
I’ve long been a fan of invoicing software, and it’s not just because it means I don’t have to reach for a calculator at tax time. Not only do these apps make invoicing a breeze (seriously, a 30-second job), but most allow you to set up automated invoice reminders for clients when invoices are overdue.

One of the hidden benefits of using automated follow-ups is this: you’ll no longer need to spend a long time agonising over the wording of a reminder every time a client is late paying. I used to spend ages writing and rewriting these, worrying about how they would be interpreted, but no more.

What’s more, some will tell you when clients have viewed the invoice, so you can tell if the client “didn’t receive it”. I know the FreshBooks have this feature and FreeAgent have just introduced a feature that will tell you if the email bounces (not quite the same, but a start). If you want to be sure, you can always send that invoice manually as a PDF attachment.

I recently moved to FreeAgent from another popular app and couldn’t be happier. If you sign up using this link or enter the code 47ha59ea at checkout, we’ll both receive a 10% discount on our plans forever. Yes, forever.

3) Invoice as soon as the work is complete
In 2013, FreeAgent published a blog that revealed customers of theirs that invoiced shortly after work was complete were frequently paid within just five days.

They think this is down to ‘recency bias’, where clients give more importance to the invoice because they’ve recently seen the results of the work you’ve done. Worth bearing in mind.

4) Find out when your client will pay their invoices
Some clients process all of their payments on the same day each month (i.e. the 3rd Friday or whatever). In your initial discussions, find out if this is the case. If so, ask them when they pay and when you would need to submit your invoice by for each payment run. This may result in you being able to shorten your terms by invoicing much closer to the payment date.

5) If you’re working with clients overseas, use a TransferWise account
There may well be other similar services available, but I’ve had an excellent experience with TransferWise. I used to use PayPal for convenience, but the switch has been absolutely worth it.

TransferWise works by setting up a local ‘account’ in each country/currency you work. That means that when clients pay you, they pay to a local bank account in their local currency. You can then convert/transfer the money whenever it suits you, at TransferWise’s excellent exchange rate (basically what you see on Google).

Each of these local accounts takes about one minute and I’ve not had a client refuse to use this. Happy days.

If you use this link you’ll get your international first transfer (of up £500) free. If enough people sign up, I’ll receive a commission, so use it if you feel this post has been valuable.

6) Setup a ‘finance’ email address
Some participants in the discussion last week mentioned they had success in getting clients to pay more quickly when they used an ‘accounts@’ or ‘finance@’ email address. I’ve not used this, so can’t vouch for how effective it is, but it could be worth a shot.

7) Charge late fees
Some clients use late fees to encourage their clients to pay on time. Others offer a discount to clients who pay early. Either way, it sends a message that on-time payment is important to you, so pick one and stick to it.

8) Make sure you’re charging enough
If your client is dictating particularly extended payment terms (60+ days), it might be worth considering charging that time at a premium rate. This can be justified both to cover the inconvenience of waiting so long, and also to compensate you for the additional risk you are taking on. What happens if they go bust during the period you’re waiting for payment?

Rather than offering this retrospectively upon finding out a client has long payment terms, this could be a factor in the standard rates you offer. For instance, your rate might be £A for clients that pay within 30 days, £B for 60 days and £C for 90 days. In effect, the quicker clients pay you, the cheaper you are.

9) If you’re being made to wait, invoice often
I mentioned this in the original post, but it’s worth reiterating. If your client’s finance department is going to make you wait for 30, 60, 90 or even 120 days for payment, invoice them for your work on a weekly basis. This means that you only have to wait for that initial payment once, before starting to receive a weekly income for your work.

10) Cover the costs of client ‘admin’ fees
To my utter disbelief, today I saw tweets from freelancers whose clients charge them an ‘admin fee’ to ‘process’ their payment. That’s right, the freelancers were being charged to invoice the client for the work they had done.

In this case, make sure you add the cost of this to your invoice or charge enough that this doesn’t matter.

The usefulness of these tips will vary greatly depending on your situation. I think the overriding point is to make sure to talk about the terms before a contract begins. At the very least, the conversation will give you the opportunity to discuss an alternative approach if the default terms are too long.

Handling late payment

Late payment and long payment terms are separate issues but often intertwined. The combination of these can be particularly devastating for freelancers.

A few years ago, the aforementioned Andy Clarke shared a blog that contains the most effective email he’d ever sent to a client that was late paying. It’s a refreshingly open and honest approach that is worth a read.

If you find yourself in a position where clients are unreasonably withholding payment, check out Paul Maloney’s brand new overdue.work site. Launched last week, it’s a curated list of resources to help freelancers get overdue payments. Hopefully you won’t need this, but it’s good to know it’s there.

If you have any tips for managing or preventing late payment not mentioned above, put them in the comments below — I’d be fascinated to hear them.