|Slow paying client|
Slow pay not no pay
Hmm.. I need a bit of advice from my fellow consultants.
Like many of you, I run a consultancy. We're a 3 man show but still a small business. Since inception, I've learned ropes and knocks with cash flow issues so I have eliminated having any credit policy, enabled electronic payment methods and shortened the invoice to due date to 7 days. I'm pretty graceful on the 7 days, if it takes 10 days or if its a mailed payment in th email at 7 days I'm pretty ok with it.
However I have this client that is really getting under my skin. They've been a client for a while, even back 2 years ago when my original terms were 21 days before I enabled e-billing and electronic payment methods. I let them know that with the e-billing system that payment terms had shortened from 21 to 7 days, and recommended that they switch to electronic methods. They werent too happy about it and refuse to pay by electronic method, whether credit card or even bank wire (at no fee to them) - plus they had been late on the previous 21 day arrangement before several times.
After a particularly bad swath of invoices that were going overdue (they were mailing cheques; and not even getting them in close to 7 days) I told them that I'd rather the payment be electronic, these cheques in the mail give me zero confidence of when they will actually arrive. I suggested using a low priority courier so they could provide a tracking number, deducting the cost from the billing; they refused. I opened a bank account at the same bank as them so they could do a client to client wire at no cost; they refused. They demanded there is one way they will pay, that is by cheque in the mail. I wasnt too happy about that because I am moving away from processing cheques; being a consultant in this wired up world it seems a bit stupid to be waiting for the post so I can take the cheque and put it in the mail; all of my utilities and communications providers accept electronic payment.
In the end, they made a stern promise that while they would send the cheques as quickly as they could, that they would probably not make the 7 day window, but they would promise that nothing would be later than the 21 days of the previous term.
Well after a huge swath of new work requested, the outstanding balance including committed work yet to be billed for is much higher than I am comfortable with; the total is around $3500. I can't afford to carry credit for my clients, it puts me in the situation I'm in now: tons of funds in receivables for a demanding client thats been due to arrive for over 21 days.
So I make the call to the client, first at 10 days, then at 20 days, then at 26 days I finally get a conference call with the client and the bean counter to "discuss the payment terms". They fire back at me that the 7 day terms are unreasonable, they want Net 30; they cant deal with me unless those are the terms. I'm left thinking, jeezus, these guys a) are already beyond their promise of no longer than 21 days, b) still havent cut the cheques for any of the amounts and c) now they want terms of 9 days more as a matter of course?
They are making this as a demand of continuing to conduct business. Of course, I'm more concerned about getting my damn money than negotiating a new credit policy. I tell him, I cant change the policy to 30 days. What I can do is make arrangments on the amount outstanding already. They agree to cut a payment for the amount 26 days due and a postdated payment for the following week for the amount that is 6 days due. I say thats fine, call is over. They say no, we need 30 Net terms. I say best I can do for you is that you can contact me as you receive the invoices and let me know what date you will be paying the invoice before the 7 day window. I cant stretch the terms, but if you contact me and promise a date to pay within 7 days of getting the invoice, I can work with that. They ask for net 30. I give silence. 4 and a half minutes of silence.
So then I get his "confirmation" email confirming that we discussed the net 30 day terms from this point moving forward, asking for a confimration that this is what I agree to.
I'm livid. Here the guy is way overdue and way over and beyond having an outstanding balance that I'm comfortable with, and he's bullheading me into changing the payment terms? I do great work for this guy at a way reasonable price. Every payment has been a battle to get on time at all; I even switched them to prepaying in blocks of 10h. In the time it took them to pay the prepayment the entire 10h were all used up and then some, so I'd end up submitting extra hours along with the next prepayment block. That solution turned up completely useless, they take so long to pay. I waited 6 weeks for a 10h prepayment block on terms of 7 days, allowing them 21 day grace.
Now after getting that "confirmation" e-mail, I'm getting totally fed up. What if this guy is waiting for my "confirmation" to release the cheques and THEN put them in the mail?
I do really good work for this guy, I know he cant get this kind of quality anywhere else, I do heavy duty custom solutions, took his business from paper printing writing data entry cycles all over the place to full digital end-to-end plus whacks of other little uniques. Other consultants for these kind of services charge three times the rate.
I'd debate doing a credit policy with him because he is a really regular client and in the end they usually always do pay, its just a battle and they are always behind. However his confirmation mail only includes terms favorable to them, zero security for me. If I agree to them, I basically get to bill to the netherworld and I dont even get to find out if the payment is late until 60 days after the work is done (billing net 30 after work is done, due in 30) with zero security on my end for credit card, deposit, nothing.
I'm pulling my hair out. Ready to call Guido. Any ideas how I can save the client and get my damn money? I have a raft of clients, this is the only one with payment issues.
It sounds like you're taking this personally, when in fact, you're just dealing with another company that isn't capable of adapting their accounting practices to accommodate anything less than NET 30.
If you want to keep them as a client, give them net 30, with a penalty for late payment. If the business isn't worth the bother, cut them loose.
Either way-don't take it personally.
I don't know what the industry standard is for consulting, but 7 days seems awfully short.
Unless the client is worth a lot of money, I'd say this is definitely a client to fire.
If he's really worth keeping, then give him the Net 30, but impose a big penalty for any late payment- even 1 day. (Make sure he understands that the terms are when the payment is received by you, not when the check is posted. A few late payment may encourage him to alter his payment methods.) Along with the "stick," toss him a carrot of an x% discount if payment is received within 7 days.
Hmmm.. Yes. To comment to the fellow who suggested that I am taking this personally; no, I am not taking this personally, other than the lack of the client to come even close to my 7 day terms which have been in place for over a year has caused me to personally face a cash flow crunch (employees get paid first). I have carefully tuned my collection/credit policies to match the size of the tickets my business sells.
I bill out weekly, and ask to be paid weekly within 7 days of the invoice date. This is for a good reason; if I send out all of my receiveables on Monday and get paid by the next Monday I avoid cash flow crunches, pay my staff quickly (weekly) and can detect potentially bad debts quicker.
My "stick" is rarely used, because often I'm making the "have you received the invoice" calls on the 10th day after the invoice is sent, second on the 16th, third on the 21st and the stick starts coming out on the 30th. At $50/hr it doesnt take long and the client can be owing thousands in a Net 30 situation; 10h per week of usage quickly adds up to $2000 in a month of receiveables, if the previous month was the same I could be in big trouble trying to collect on $4000 by the time I know it's late.
I'm not being defensive here; just perhaps you didnt consider that I've my good reasons for billing weekly with net 7.
To the other second answerer, yes I beleive that is most definitely an option. They are a regular client and I'd like to keep the account if I can. I've been leaning somewhat that way in to tell them if they want net 30 I'm going to have to get them to sign off on a credit agreement to go along with longer terms. My concern is that the net 7 I've come up with works very well in deflecting cash flow crunches.
However the beligerent attitude on payment on time and changing terms when they are already past due on a considerable amount makes me nervous to taking that route; whats to say if they are on Net 30 with a $15 late penalty plus 18% per annum that they wont just use that penalty to extend themselves mid term credit.
I'm kind of torn on this one.
What kinds of payment policies do you guys use? How are your cash flow issues based on those payment arrangments? Please include your average ticket size.
I agree that you are taking this personally and as a side note type too much :-)
I have a customer who pays by cheque once a year. He never sends the cheque. He says "Ohh, I sent it and thought you received it. I'll write another one and if they both turn up just rip one up".
Even after a reminder email he says the same old story. Only when I put his account on three day notice of suspension does the cheque turn up next day....
Some people are like that. They think it is their right to either hope that they can get away with it, or that hope that they can delay money being drawn from their account.
You have to accept that there are people like this as much as there are people who pay before the due date: it's swings and roundabouts.
Forget worrying about it. Close him down now and let him come back in his own time. Don't get so worked up about it as all the negativity towards him will affect your performance.
yeah I type about 140 so its easy to get verbal diahhrea in a post.
Its hard not to worry about it, though. Its a regular client and a big receivable. Shutting him down could turn him into a flight risk. Keeping it going could turn him into a credit risk.
Its the tightrope in the middle that I want to walk, at least until I get my money...
The other thing to consider - look at all the time you have put into this. Calling them emailing them; posting here; going to the bank, standing in line waiting to deposit the check; maybe the bank holding onto the funds for a few extra days - etc. It sounds like a $3,500 is more like a $5,000.
So either hand over all the source code and everything that you have done for them so far after you get the final payment or start charging them more to cover all the extra expenses.
Some people do not think that the web is a business. They think that it's a hobby. I have ran into this a few times. And with you giving them 30-days, no matter what - shows to them you allow it. Start charging interest on their balance.
You said yourself, you are not a bank. You bent over backwards to accept money from them other ways. It's time to get them to get you payment another way - you have your own bills to pay.
Ah, I really enjoy these topics. When it comes to invoices due, I take no prisoners.
I had a client who tried to get me to change my terms and I absolutely flat out refused. I informed them that my entire business model revolves around my terms and I sure as hell wasn't going to change them.
They balked and then they told me they were going to take their business elsewhere. I told them, fine, let me get everything ready for you. So, I spent about an hour getting everything ready for transfer, sent multiple emails with instructions for hooking up with a new host, etc.
The next day, the President (my main contact), called me and informed me that they set up an automatic payment from their bank to mine. Now I get the payment one week in advance, go figure!
I'm very strict with my terms. I pay my vendors when invoice is received. I hate floating money and I sure as hell don't like bills. They come in, I pay them the same damn day, no need to put it off.
There comes a time when certain clients just need to be written off. But, I find that very few will make the switch if they've been with you that long. I despise companies who try to circumvent terms to meet their requirements. Its bad business and leaves a bad taste in everyone's mouths.
Put your foot down and tell them that they either follow the terms or find someone else to do the work for them.
P.S. If you've been with them for two years, there's a strong chance that you are not quickly irreplaceable and for them to take their business elsewhere may not be an option. You have to gain the upper hand in issues such as these. If you don't, the client get's the upper hand and I personally prefer not to be in that position.
It's like hey, I deliver your request on time, it's only fair that I get paid on time, don't you think? What part of that is not understandable? How about we do this? I'll produce the work for you and then hold it until payment is received? Does that work for you?
You and I look at a lot of things the same way. I pay my contract staff when the invoice is received (sounds like you do as well). So if the client takes 35 days to pay, I've got staff that are grouchy as hell and not putting time in on other (more rapidly paying jobs); and I dont blame them. The guy who owes you a grand for the past 30 days isnt as high on the charts to get to work on another project as maybe going to the beach or working for someone else.
Bad taste in the mouth, indeed. What infuriates me about this situation (perhaps why some think I'm taking it personally) is the fact that while I'm on the hook for 3.5 months worth of work to the tune of $3500, while cheques arent in the mail already, I'm getting wiggled on the terms. Kind of like extortion in reverse. Of course there was never a threat to walk away from the debit, but between the lines as the creditor you know you have to think of the possibility.
Unfortunately with my business doing the consulting work cutting them off doesnt have the same effect as hosting. Host cuts them off, the site vanishes. Consultant cuts them off, I have to wait for everything to explode on its own before they're on their knees. I do however take clients from the usual platinum service and drop them to "iron service". As in calls stop getting returned and inbound calls have long times dwelling on hold while I take other calls, new projects dont get started. They get the message.
If conditions were different I would consider some sort of a credit app with a 30N terms provided I had some security and an ironclad agreement. I just have a hard time justifying extended terms on an account thats overdue. Its like, "I dont give a damn if you want 30N in the future, these bills were all on 7N and they're overdue. If I switch you to 30N in the future that doesnt make any difference."
Overall, its this attitude to be justified in growing your business on OPM (Other People's Money) that I'm finding prevalent here. Purposely aging invoices, racking up credit on a cash account, then complaining that the terms are not like a credit account, like somehow I'm a jerk for saying Due on Receipt and that I should act like a "real business" that does 30N.
I'm curious what the cross section of consutants billing practices are. As far as I'm aware you've got a) the little guys desperate for business who will do 30N or whatever the hell the clients want, b) the intermediate guys who want credit card payment or retainer, and c) the big firms that want prepayment all the way on a monthly contract. I'm somewhere between b & c. I prefer credit card or bank wire, all new clients pay prior to delivery of product. Established clients get flex in that they pay when job is done on 7N.
If you are in the EU, you have substantial legal protection against late payment of invoices.
Late payment is an automatic breach of contract, allowing you to add substantial penalty changes and collection costs without the delay involved in issuing warnings.
Try googling for [eu directive late invoice] for details.
If not in the EU, why not consider relocating? :)
|I'm curious what the cross section of consutants billing practices are. |
I typically work on a retainer basis, billed three months in advance. For larger clients, I may break that down into monthly payments due in advance. I send those invoices out two weeks before they are due. All of my clients pay them on time.
And then I have project billing. Those have a 50% down payment, 25% midway and the balance due on receipt. It all depends on the scope and dollar amount of the project. Either way, all of my invoices are due on receipt. Yes, long time clients who have a solid history get a bit of leeway, but not much damnit!
Its very difficult to switch terms in the middle of it all, especially with existing clients. That's why I thought hard on my terms in the beginning and decided everything would be billed in advance. I don't want that window of opportunity (extended terms) open. This is the Internet. We don't wait. When you buy something online, you don't get terms, you pay for it then. Same thing applies to Internet related services. Of course there are always exceptions to the rule. The larger the dollar amount, usually the more exceptions given. ;)
I have an additional suggestion. Agree to his 30Net credit terms. But stipulate that because of his bad credit history with you, you require a $2,500 (or set whatever amount you want) deposit/retainer/whatever-you-want-to-call-it.
If/once you have that in place, you can handle things however you want. Suggestion- if the balance hits zero, no more work will be done until the deposit level is "rechanged." Period.
In some ways, it may be the same situation you're in now, but at least you have the money up front to make up for the late payments.
Your terms are your terms, if they don't agree to them then they should go elsewhere. As far as them wanting to negotiate it now I'd suggest you tell them you're happy to discuss future payment terms after their payments have been received. Whatever gets decided in the future has nothing to do with the overdue invoices - where they had agreed to previous terms. Personally I would not change my terms for anyone - there's the old saying give em an inch and they take a mile.
As far as the prepayment goes - I would not start work until the payment has been made. That's why it's called pre-payment. ;) If it takes them 10 days to pay then they'll wait that for the work to be done. I suspect after a few weeks of this payment will become prompt.
As someone else says the fact that they've stuck with you so long seems to say they really need you. Do you need them? How much time (un-billed) do you spend chasing their payments? IMO client relationships are all about respect - you provide good, prompt work, they pay you promptly.
Net 7 is ridiculous to demand. Perhaps you can try to push that on a small client. But larger companies often cannot pay that. Net30 is even a struggle for some of them to meet.
Your cashflow woes are not the clients problem; don't use that as part of the argument to them.
|Net30 is even a struggle for some of them to meet. |
Your cashflow woes are not the clients problem;
Similarly, the client's cashflow problem are not your problem either. The OP said he accepts credit card payments, so Net7 is not that unreasonable.
However, I do agree that the OP should not make cashflow the main point of the issue. The main point of the issue is that the OP has stated Net7 as the payment and the client can either abide by it or go elsewhere.
|Net 7 is ridiculous to demand. Perhaps you can try to push that on a small client. But larger companies often cannot pay that. Net30 is even a struggle for some of them to meet. |
I think we are at a crossroads in this issue. Net 30 is somewhat old school. That's traditional Brick and Mortar thinking. I come from the camp that feels that "Due on Invoice" and/or Net 7 is the way to go for anyone providing Internet related products and/or services.
We are in an era of "need to have it now". This same concept should apply all the way down the food chain. In fact, this "need to have it now" mentality cuts out some of the steps in the chain and actually improves TTP (Time to Pay) considerably. ;)
I've seen too many horror stories over the years concerning terms. I've dealt with them myself. In the almost 20 years I've been in the Advertising and Marketing industries, I've had to write off a small fortune due to terms. I hate them with a passion!
So, from that experience and reading about the experience of many others, I decided that terms were non-negotiable in 9 out of 10 cases. There are allowances as specified above.
1. Retainer Fees I - Billable in 90 day increments in advance.
2. Retainer Fees II - Billable in 60 day increments in advance.
3. Retainer Fees III - Billable in 30 day increments in advance.
4. Project Work - Billable in 50/25/25 increments in advance. 50% due on approval. 25% due at mid-point (to be determined in writing), and the balance due prior to launch.
My rule of thumb is to always secure at least my "fixed costs" on initial down payment.
I've found that working in the above manner has eliminated all the typical stress that is associated with accounting and collection issues. When you work in a "straight commission" model all our life, you learn a lot about collections. Its a very time consuming and life-sucking process. Its a series of voice mails, faxes, mail, more voice mails, more faxes and more damn mail!
This is the Internet. The Internet does not have Payment Terms.
When was the last time you received Net 30 on your Internet purchases?
|I don't know what the industry standard is for consulting, but 7 days seems awfully short |
My invoices are due upon receipt. My terms are 50% down on project, 25% midway and balance upon completion. Late fees and interest apply to all late accounts.
I like Asia's suggestion of asking for an upfront retainer that you work against and I would also tell them that in addition, they must submit to electronic billing that will immediately debit their account for any outstanding balances on the 30th day no exceptions.
If they disagree remind them that this is a give and take and they are doing all the taking. If they still disagree, fire them and move on to better paying and richer clients.
I tell my clients I am not a bank. If you need financing go talk to a lender, don't use my accounts receivable as your de facto credit line.
Thank you, you people are wonderful. I was beginning to think I was going insane.
First, to address the posts that Net7 is an evil thing, I refer to the post where the fellow mentioned that as I accept credit card payments I can refer them to a bank for the credit. Amen. I take a hit of about 1.4-2.2% on a credit card payment, which is a pretty steep thing for a short term loan. The client will pay about 16-19% for the privelege, but on sub 5000 purchases the bank wont even loan you money, they will refer to to a PLC which is handled by the same company, VISA. If the client wants credit, they can get credit. Just not on my credit. I will do the work on goodwill but credit isnt something I can afford to offer until my business grows a bit further.
Second, the commentary about how me commenting to the client that the problem was my cash-flow, you must stand corrected. In my collection call, the client spoke at great length about the peaks and valleys of cash flow management, and it was in retort to such commentary that I stressed that the deep valley of $3,500 in fees for 2.25 months of services were affecting my own cash flow. This is was not of huge concern for me, other than that the amounts were not payed during even 30 days due.
The crux of the problem of course, is that the client in owing state, wants to have the terms changed. Whislt the client is owing large sums of money, the risk belies on me; to annoy or anger such client puts them into a flight risk position. To not annoy them, may require agreeing to their terms as stated. Such position regarding work already completed is unreasonable; and while this was not explicit it was somewhat between the lines in the "continue to dealing with you" speech.
Anyways I am really liking the prepayment options; however I have already tried them. The end result was that the prepayment block arrived after it was used and the charges attached to them only became larger over time. The auto authorize beleive me I have tried but they are at max credit levels I have seen the host had to be changed and the card on file rejected.
So I guess I am at limits; how to keep the client while ensuring security. I guess what I will do is slow them down to the point of payment received = more work done. A low credit client wont be able to do much better. So I have degraded their service level from the platinum they desired to a more copper; email and scheduled only. Prior I would speak to this guy every day, from 6am to 2am no matter what. He made real use of it at a $49 hourly rate, and now he is paying the price. I have received payment for everything billed so far but still another $1,500 to go on the committed charges.
I will wait for his earning capacity to rise before allowing him to autofinance on my dime.
Any suggestions, I'm all ears. What you do is what I do and it is beautiful to speak to one and the same.
I deliberately use shorter and non-standard (ie non-30-day) terms stipulated in the contract so that the accountant cannot just chuck my invoice in the 'ignore as standard' tray. I force them to handle my invoice specially. Usually I could live with 30-day payment if it really was done that way, but having lived with the whatever-we-agreed-plus-50% attitude of many accounts departments, I'm not having anything longer than 14--21 days as my notional terms.
These days I generally get paid within 14 days of invoice which is fine.
(I had one head accountant at a VERY large international firm fired for continuing to piss me around on the issue, and still have a very good relationship with that client. So you can win as the consultant if you document the illegal and unreasonable behaviour of your client's accounts department.)
Also, in general, when I feel a client is mucking me about, I explain why I am unhappy and reduce the new work I put in (eg hours per week) but continue to chase the outstanding bills until the message gets through to the people wanting the work done. In one extreme case I billed the client for an extra hour each week for chasing overdue payment; in this case the accountant was on my side and made sure it was paid, thus more than compensating for my interest costs.
Note, in the UK YOU CANNOT ENFORCE PENALTY CHARGES in contract law UNLESS THEY REFLECT YOUR COSTS. But cost recovery is reasonable in cases like this. And that includes the cost of chasing payment beyond agreed terms AT YOUR FULL RATE if need be.
[edited by: DamonHD at 1:02 pm (utc) on June 9, 2007]