Ask HN: Slow paying client and how do you deal with them?

https://news.ycombinator.com/item?id=11085507

by zenincognito • 10 years ago

7 16 10 years ago

news.ycombinator.com

We run a small web service business.

Our products mostly SEO are a monthly subscription and range about 5K/month. We are experiencing a bit of a cash flow issue as most invoices are pending from 3 months or more.

The clients are all happy with the services they receive but are not making the payments on time. How do you deal with your invoices ?

Whats the structure at your business ?

chrisked• 10 years ago

Speak open and friendly to your client that it is important for you being paid on time. I would always call over email a client. You get a better feel on what's going on. If multiple follow up attempts fail, I'd speak more serious and eventually involve a lawyer. You could also explore selling your invoices. Factoring can be a good way to mitigate the cash flow issues.

MrTonyD3• 10 years ago

I had this problem, and solved it by giving discounts. Hopefully, your pricing will allow this. It is fairly standard to see a notation on an invoice like 1/10 net 30

That means you will give a 1% discount if they pay in 10 days, or the entire undiscounted invoice is due in 30 days. This made a huge difference in my business, since all my customers wanted the discount.

I should add that I was doing projects and billing for projects for the Fortune 50 - with a good margin. So I'm not sure if this will apply to your customers.

zenincognito4• 10 years ago

The 1% is quite affordable and it certainly demands an experimentation on our end.

I will try and integrate this and get back with how we performed.

MrTonyD3• 10 years ago

My invoices typically varied from three thousand dollars to sixty thousand dollars. Counter-intuitively, I offered a 2% discount on the larger invoice - since getting that money would provide plenty of cash to continue my company.

After I started the 2/10 net 30 every invoice was paid in ten days - no exceptions for the years I ran my business. And only a handful of the the 1/10 net 30 weren't paid immediately. Before I started giving those discounts, I was really struggling with cash flow. After that, I was swimming in cash.

emmasz• 10 years ago

It's interesting that you got a positive outcome. I also thought about this solution, but I just assumed, that it would work like a fine on them. And if clients would simply be fined, then they could decide for themselves whether to be late or not. And would obviously frequently choose to be late. And that's not something I want.

Of course, it may depend a lot on how you put it. I guess your clients rather felt a loss aversion and didn't just get comfortable with late payments.

MrTonyD3• 10 years ago

I quoted a price - say 6 thousand dollars, for the job. Then, when I billed it, I would bill for the full six thousand dollars, with the notation of 1/10 net 30 or sometimes 1/15 net 30 (since a few organizations had trouble getting checks out quickly, and wouldn't even try for the ten). So there was only a discount seen by the accounts payable people - and it was never discussed at any time. I don't know if anybody that I actually worked with even knew I was giving the discounts. They were just there to motivate quick payment.

At any rate, they worked very well in real life. Never any problems. Just a matter of adding the notation at the top of the invoice.

brudgers• 10 years ago

To a first approximation, when a client doesn't pay on time, I stop working for them. Clients who don't pay are worse than one less client because there's no income and there is an allocation of resources...both directly and to collections.

There are cases where I have had a long standing relationship with a good client who was experiencing short term problems and let me know about it and we worked something out. Those cases are very rare and required an existing good relationship.

On the other hand, people who started out slow to pay never get better.

Good luck.

davismwfl3• 10 years ago

I have lived this many times over. You will always have clients like this, these are the best ways I have found so far.

1: do not give net 30 day terms unless a client has earned them or applied via credit. Some exceptions can be made for large firms, but many small to medium businesses are terrible about paying. Large businesses might be a little slow, but almost always pay consistently the same, unless there is a known issue.

2: If you do give net 30 terms (or anything more then 10 days), provide a discount for payment within 10 days. This makes almost all larger businesses prioritize your invoice and get you paid. You may think it is minor, but many businesses do this over hundreds or sometimes thousands of invoices and they save significant amounts of money doing so.

3: Make payment details clear within your TOS/contract. For my smaller consulting clients, if their invoice was unpaid after 3 days from the due date I stopped all work and they lost their spot in line for services. So essentially most of those clients had 7-10 days to pay me or I halted all work. I also had it up front that if that happened 2 times within a short period (defined in the contract) that all future work (if accepted) would be prepaid. This was part of my non-negotiable contract terms. For my SaaS product, I used similar terms, we billed their credit card for small/mid sized clients (generally under $2k/month) and if their card was denied or we were unable to collect that months service after 5 days we suspend their account until it was brought current. They typically had until the next billing cycle to do so and then their account was disabled and couldn't be reactivated without talking to me. For enterprise clients on the SaaS product we used invoice terms with a built in discount and a time bomb suspension, it was just typically a little longer as I never had an enterprise not pay.

Employing those three strategies fixed most of our cash flow issues and helped stress levels go down drastically. But sadly, it never fixes all the issues so like others said, no client is better then one sucking up resources, dump them.

Also, I had clients get super upset when their accounts got suspended or we stopped working their project and they went back into the queue. But in the end, it isn't my problem, it is theirs. I would always try to empathize with them and would work with some to help out where it seemed right, but in the end, fuck you pay me. https://www.youtube.com/watch?v=jVkLVRt6c1U

zenincognito4• 10 years ago

Thank you for your detailed post and time you took to explain your process.

1) We only give 10 days for payment. We have also tried inserting a admin fee of $150every time invoices remain unpaid after 30 days. Clients are usually happy paying that extra 150 then paying the invoice on time.

The important thing is that they have never questioned or even shown disappointment/issues with a late payment fee.

2) Yes this is something a lot of people have suggested. I will be happy to give this a try.

3) Being a service business, we emphasize this when signing them up and also talk about invoices by building up a personal relationship. I am unsure that stopping work will work in our favour. However this sentiment is being echoed by many people here.

davismwfl3• 10 years ago

Your welcome.

$150 on an average invoice of $5k isn't nearly enough. My penalty is 10%. Yea that is insane if you do an APR but I don't treat it as that, it is a one time penalty. Also, I usually set a minimum of say $100.

On #3. You have only one option if someone doesn't pay you. Stop the service. It is kind of like if you don't pay your cable bill, they only have one option really, stop giving you service. Sure they can send you to collections but the only real punishment is removing your access. Same for you.

I totally understand that being a hard concept as you probably are a good person and want to see the good in people. But people will take advantage of that until you draw a line and prevent it. It sucks but it is just how some people work and have to be handled.

Here is the plus. If you setup your marketing correctly and target the correct clients etc then this becomes a small percentage of the people you deal with. And honestly the people who routinely do this to you are the people to cut loose. The guy/gal who had a rough month and calls you is almost never the worry.

davismwfl3• 10 years ago

And I forgot to mention it in my first reply but a penalty is never as effective as a discount. Even though I usually build both into my contracts and TOS.

gavinbaker• 10 years ago

We have a small agency, and have these issues too. Most of the time it is just the occasional slow payed invoice. If they get past two weeks we shoot them an email.

Things we do to lower the risk as much as we can. #1 we get paid upfront for the month. #2 We always ask for a credit card or ACH as part of the contract, we still do get checks because for some that is the preferred method for them, but we try to get the CC / ACH.

For us, if it's becoming an issue over 1-2 months, I'll personally make the ask and find out if something is wrong. I try to give them the benefit of the doubt that the invoice isn't getting to them or was missed.

Something people have suggested is when the payment is late, a nice notification email that just says that you haven't received payment for this month and according to policy, work is suspended until payment is received.

The reason we don't do this is because for us 100% of the time it has been a missed invoice, not an intentional stoppage of payment.

zenincognito4• 10 years ago

Thanks for you advise. I appreciate it.

One of the problems with setting up Stripe/credit card payments for us is the amount is close to 5K. Most client would prefer a invoice as opposed to a direct debit.

Clients on a 1-2K retainers generally ask for an automated payment. Clients above the 2K mark generally pay but are usually much slower.

We email them after 10 days and then a personal call is made every 15 days.

We have never had a non payment issue as such but the invoices are always waiting for the directors or someone's signature to go through.

We have tried the following so far

1) Automated payments. 2) Personal email after 10 days 3) Call every 15 days. 5) SEO invoices are month in advance yet payments come 30 days after service is delivered.

For ongoing clients that have been us with over 6 months it may be difficult to stop services. We know they will pay as we have a good relationship.

saluki• 10 years ago

Monthly subscriptions for your monthly services . . .

Setup your payments with Stripe so they are recurring subscriptions . . . this will keep them paid on time.

I expect most clients will just signup so they don't have to handle your invoices.

I would start getting your slow to pay clients signed up first but roll this out to all clients. If a client is shying away from signing up offer them a discount to get on subscription payment.

For slow/non-paying clients . . . not on subscription . . . a friendly email reminder that invoice are due upon receipt or 30 days net (spell out terms on invoice). After 30 days we will stop providing services till invoices are caught up.

Good luck.

zenincognito4• 10 years ago

Thank you for your input.

Unfortunately, for us some of these clients make up a good chunk of our business. They also have been with us for a good time.

Stopping work might not work in our favour. However I think your other suggestion echoed by some others about offering some discount to either sign up on a automated payment or paying by a certain date also makes sense.

thisisdallas• 10 years ago

I prefer the horse head in bed route. Seems to work about 92% of the time.

Ask HN: Slow paying client and how do you deal with them?

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