The holidays puts everyone in a celebratory mood — or almost everyone. For small business owners, the celebration may be tempered by stress over unpaid invoices. My business is lucky: Lots of our clients are scrambling to issue payments before year-end to finish off their fiscal years. But for other small businesses, freelancers and entrepreneurs in the B2B world, getting paid this time of year is an ongoing struggle.
It’s ironic, because the time between Thanksgiving and New Year’s Day is one of the most profitable for many businesses (on paper, that is). A WePay survey found this period accounts for 20% or more of small businesses’ annual income. But getting paid during that time is another matter: 21% of survey respondents have problems with late payments at year-end.
Another survey by accounting software FreshBooks reports 40% of freelancers expected to start December with unpaid invoices (payments between one and six months late). In some states, the percentage is as high as 56%.
The average amount unpaid is $2,850, FreshBooks found, but in New York, the average tops $4,200. That’s a good chunk of change that could be used to buy holiday gifts, pay for your company holiday party or give employees bonuses.
However, if clients don’t pay on time, it’s your own paycheck that’s likely to take the biggest hit. According to a Fundbox study, when invoices go unpaid, 79% of small business owners say they hold back on paying themselves in order to pay business expenses.
Late-paying clients can even turn you into an unwilling Ebenezer Scrooge. Some 18% of the entrepreneurs Fundbox polled say they’ve been forced to hold off on employee bonuses or reduce employee hours to cut payroll costs. That’s a move not likely to boost your popularity with the team.
What Causes Late Payments
Why are so many payments late this time of year? There are many reasons:
- Some companies want to delay payment until 2019 for tax reasons.
- Some companies close down between Christmas and New Year’s Day, making it impossible to get any movement on payments during that time.
- Even if businesses don’t close down, employees taking time off, being away from their desks at company holiday parties, and other unexpected absences can make it hard to get the answers (and the payments) you need.
- The U.S. Postal System is always overloaded this time of year. That means if you still receive payments via check, these can be delayed due to the volume of holiday mail.
How to Get Paid on Time
Whether your clients’ motives are innocent or not-so innocent, there are some steps you can take to get that year-end “bonus.”
- Act fast. If you haven’t already invoiced clients, do so now. FreshBooks reports in December, it takes clients an average of 15 days to pay.
- Follow up. Don’t delay in contacting late-paying clients. In fact, it’s a good idea to be proactive this time of year. Contact clients a bit before payment is due to see if it will be on time.
- Be persistent. Don’t be shy about re-contacting clients until you get paid. Be polite, but don’t let up.
- Expand your payment options. Be flexible to make it as easy as possible for clients to pay you. Over the years, my company has accepted clients by check, PayPal, EFT and more. Recently, a client said they could pay us right away if they could use Venmo. We didn’t have a Venmo business account — but we quickly set one up, and just as quickly got the money in our bank account.
- Offer alternatives. If clients can’t pay the full invoice in time for whatever reason, discuss options such as setting up a payment plan to get at least some of your money now.
Prevent Late Payments Going Forward
Next, take these steps to ensure timely payments in 2019.
- Issue professional looking invoices: Use invoice templates to create consistent templates that look professional. Keep them streamlined so key information (amount, due date, where to send payment, etc.) stands out.
- Issue accurate invoices: Make sure your invoices are complete and correct. Double-check things like routing numbers, PO numbers and who the invoice should be sent to. Many delays are due to honest mistakes.
- Send timely invoices: Try invoicing as soon as the work is completed or product delivered. Unless you have a different agreement with the client (such as sending one monthly invoice), this is a good way to get paid faster.
- Set consequences for late payers: In 2019, crack down on your 2018 late payers. Set stricter terms; require partial payments upfront; change their method of payment; or even require c.o.d.
Photo via Shutterstock
This article, “How to Handle Late Paying Clients with Ease Using These Tips” was first published on Small Business Trends