
Ask HN: Slow paying client and how do you deal with them? - zenincognito
We run a small web service business.<p>Our products mostly SEO are a monthly subscription and range about 5K&#x2F;month.
We are experiencing a bit of a cash flow issue as most invoices are pending from 3 months or more.<p>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 ?<p>Whats the structure at your business ?
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brudgers
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.

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MrTonyD
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.

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emmasz
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.

~~~
MrTonyD
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.

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gavinbaker
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.

~~~
zenincognito
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.

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davismwfl
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](https://www.youtube.com/watch?v=jVkLVRt6c1U)

~~~
zenincognito
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.

~~~
davismwfl
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.

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saluki
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.

~~~
zenincognito
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.

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

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chrisked
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.

