Do you see the same clients paying late every month? Do you have the client’s accounting department on speed-dial? Are you on a first-name basis with their Accounts Payable clerk?
Today, we’ll look at how to permanently fix the underlying problems. If you need to get paid right now, follow my short-term advice from last week on collecting from past-due clients.
The big picture: Change your relationships
As I shared last week, clients pay agencies late for three reasons: administrative incompetence, unwillingness to pay, and/or inability to pay. Addressing that requires a combination of approaches.
This ultimately comes down to changing your relationship with clients. When clients have money, they pay top-priority suppliers first. They pay their employees on-time so they don’t quit. They pay the internet and electric bills so they don’t get cut off.
When they pay their digital marketing agency on-time (or early), it’s because they value the work and don’t want to risk losing the agency’s help. Stop working with clients who don’t value your work.
Clients who keep paying late: How to fix the underlying problems
Let’s look at specific fixes to help you fix the underlying problems.
Make it simple. A client kept getting late payments on his agency’s $20K/month retainer. At my suggestion, his client worked with her accounting department to update the internal Purchase Order (PO) so that accounting would automatically pay invoices without requiring her sign-off every month. Look at what’s blocking the payment, and help the client unblock that… now and in the future.
Put new clients on shorter payment terms. It’s also a matter of setting expectations with new clients—I recommend switching future clients to something faster than Net 30, if you haven’t done that already.
Offer discounts for early payment. For larger businesses, the most common is 2/10 n30 (“two, ten, net 30”)—that is, a 2% discount for invoices paid within 10 days, or else full price by 30 days. The idea is that you’re creating an extra incentive for slow-paying clients. Speak with your accountant on whether this makes sense (remember, you’re reducing revenue) and how best to implement based on your accounting system.
Match the client’s payment preferences. If you don’t take credit cards, offer it. Sure, checks don’t have the 3-4% merchant fee, but eliminating collections hassle means you can spend your time on billable—or strategic—work instead of collections calls. And if a client says they don’t have money in their checking account, they may be able to pay by credit card now. Not the best approach to their finances, but you just want to get paid. Tip: Ask the Accounts Payable person how their process works, including how you can make their life easier… and when they run checks.
Check their credit. You may not do a formal Dun & Bradstreet business credit check, but it’s worth speaking with past vendors. And you can get some of the answers by proxy. If you ask, “Do you expect we’ll have any issues getting source files from your old agency?” and they say “Yes,” I bet they have a bunch of unpaid invoices at the old agency.
Fire clients who don’t value your work. Some of this may require firing clients who don’t appreciate your work. If collections is your biggest job as an agency owner, you’ve probably got the wrong clients.
Stay on top of this. Check Accounts Receivable (A/R) every week to monitor who’s late, so you can [diplomatically] remind clients sooner rather than later. Tip: Use passive voice (initially, at least) to soften your questions about payment status. For instance, “Do you know when <CompanyName> plans to pay?” instead of “When are you going to pay?”
Charge interest on past-due invoices. This would need to be in the client agreement and on the invoice—but then you can choose to waive the late fee if they agree to pay-up in a day or two.
Send invoices with a “please confirm receipt” note, so it’s not bugging them to check in.
If an invoice is due, follow up soon after the due date. A client was sending invoices Net 7, but not following up until 21 days later. No! “The squeaky wheel gets the grease.” Tip: Use the Boomerang plugin as a reminder (to yourself) on invoice emails.
Be valued. Do your clients care about the work you do, and worry that you might stop helping them? That’s a lot better than when clients see your agency’s services as “optional” or “nice to have.” When someone’s having money trouble, they tend to pay their employees and the electric bill first—because they don’t want to lose workers, and they need the lights on to work.
Question: How does your marketing agency handle clients who keep paying late?