Why Your Client Isn’t Paying Your Invoices

Cash flow is king for many small businesses. If your cash flow stinks, it can affect being able to keep quality employees and contractors, as well hurt your reputation with vendors.

Having been in business for myself for seven years, I’ve learned the hard way about clients who don’t pay on time. Over the last year I’ve taken steps to get paid more quickly.

We recently got rid of a client who never paid his bills on time. It took emotional energy and time each month to get him to pay. His reluctance to took my time away from the quick paying clients. It’s a relief to have him gone as a client.

Here are some of the reasons clients don’t pay on time:

1. Bad Administration at their Office

Some companies don’t have a good system for paying bills. Your invoice gets shuffled from one person to the next and eventually gets stuck in someone’s In Box, where it can languish for weeks if no action is taken on your part.

A couple months ago we set up our QuickBooks to automatically send reminders to clients who haven’t paid within two weeks of getting an invoice. If they haven’t paid within a week after that, they get a personal email or a phone call from my bookkeeper.

2. Act of God (or Spam Filter)

Physical invoices can get lost in the mail or get thrown out accidentally. Email invoices can get lost in the Internet netherworld of spam filters. If an invoice is sent as an attachment to an email, it is especially prone to get caught by a spam filter.

When we find a client has difficult receiving our invoice, we figure out what the problem is and get it fixed. If it’s unfixable, then come up with an alternative to getting them the invoice. We had one client who could never seem to get our invoices even if we sent it straight to their email box while on the phone with them. We eventually had to fax it to them. Sending a physical invoice is another alternative.

3. Contesting the Bill

Some clients don’t pay because they are contesting the bill. We had a customer last fall tell us they didn’t ask us to make certain changes on the site. I was able to find the email where the changes were requested and we were paid promptly.

Find out the reasons they aren’t paying and come up with a solution. If the clients concern is legitimate, you can compromise by having them pay half or just eliminate the invoice altogether.

4. Don’t Have the Money

We did marketing for a company who was selling candy wreath as corporate promotions at Christmas. They told us they would pay us after the holidays for the work we would do. They took too until mid-November for another web site development firm to get the site working and they still had several thousand of these wreaths to sell by Christmas. We did our best to market the wreaths but there were a lot left over. He told us he didn’t have the money to pay us. We agreed on a payment plan and got the final portion of the invoice more than 11 months later when we threatened to take him to small claims court.

If a client doesn’t have the ability to pay the whole amount of your invoice, then you can create a payment plan and then hold them to it. You shouldn’t have to finance their debt. You can have them charge one of their credit card or take out a loan.

5. They Have a Policy of Holding Invoices for 30 Days

Some companies have a policy of holding invoices 30 days before paying. We agreed to do this with one of our clients because we knew they would pay eventually and were going to be a good source of income. What is annoying are the companies that tell us this is their policy after we have done work for them.

You have to decide if you are willing to wait. If not, don’t take them as a client. Have clear guidelines on paying invoices put into your contract before starting work. If their policy is unbendable, maybe you charge them extra for having to wait because you are basically financing their invoice. The other day I compromised with a client who wanted to pay in the middle of the month rather than the beginning because he was hit by many other companies at the beginning of the month. I was happy to do this because I understood his dilemma and he was paying with a credit card.

6. The Unexplainable

Sometimes there really is no explanation for a client not paying. It could be a combination of any of five previous reasons. Sometimes people just don’t like to pay their invoices, no matter how good your work is for them. They just can’t part with the money. Sometimes they are dishonest and are trying to get out of paying. We’ve caught a couple people lying over the last couple years.

We did work for a medium sized bank here in Denver. The assistant to the Vice President of marketing told us in early November that a check had been cut and sent to us. Two weeks later she told us in an email that it must have been lost in the mail, that the check was cancelled, and they were sending us another one. Having still not received the check by mid-December, we did some investigating and talked with their accounts payable office in another state. They told us that they’d never heard of us and had never sent one check to us. The accounts payable department got us a check.

Another smaller company was slow in paying so my bookkeeper called the finance director to inquire when we’d get paid. He said he’d talk with the accounting department about it. I had a friend who had worked for the company and he told me that the finance director was the accounting department and there was no other person who did pay the bills. We were in the midst of getting ready to use some strong-armed tactics when we finally got a check.

I have no solution for this unless you want to confront them or report them to their superiors.

Getting paid in a timely fashion is the lifeblood of small business. You should have clear guidelines set up at the beginning of a new relationship with a client, and you should communicate clearly and consistently when they are slow in paying.

You may have to compromise some but I’d also encourage you to set clear boundaries with them. If they don’t respect this then you should consider getting rid of them. If they do respect your boundaries, then they will be good clients for years to come. And that really is the lifeblood of a successful small business.

Dave Carlson owns Green Chair Marketing Group, an Internet marketing firm in Denver, Colo., specializing in driving visitors to web sites by search engine optimization, pay per click advertising, and Denver web site design. Call 720-922-3124 or visit his web site at http://www.GreenChair.net.