Invoicing

[bennyboy7]

Hi All

I was reading an interesting article when I was in my bank the other day.

It said that more and more companies are now charging interest on invoices that are paid late. Does anyone use this method?

I think it could damage your relationship and decrease anymore work with the client? What do you think? Its a tough choice...

[Kevin Lee]

Hi bennyboy7,

I think it's critical for small businesses to charge interest on overdue invoices or they'll leave themselves vulnerable to bad customers. In fact, if you don't charge and enforce the payment of late fees, you're practically inviting clients to take advantage of you just and you'll eventually run into cash flow problems. I've heard of some pretty bad horror stories on this subject (e.g. Freelance graphic/web designers who continue to do work for clients who swear that they'll pay up once their site gets upgraded so that they can attract more visitors/customers/revenue, etc. Next thing you know, the client's business tanks and the freelancer goes unpaid for thousands of dollars worth of work).

It's the job of the entrepreneur to explain the penalty for late invoice payments (i.e. charge a small % typically after 30 days) to his/her client in the very beginning so that there are no surprises later. More importantly, entrepreneurs will need their clients to agree to pay the late fees in writing on the job contract via signature.

Honest small business owners will do a good job, while honest clients will honor their commitment to pay their invoices on time

[bennyboy7]

Honest small business owners will do a good job, while honest clients will honor their commitment to pay their invoices on time

True words indeed, 9 times out of 10, All my clients seem to pay up, its sometimes the ones that Im more friendly with take a while! How would you go about setting something like this up? Do you know if there are any examples online? Or just create a simple T & C s contract?

Not sure how to do this but as Im getting more and more clients on board I maybe should cover myself?

[Kevin Lee]

True words indeed, 9 times out of 10, All my clients seem to pay up, its sometimes the ones that Im more friendly with take a while! How would you go about setting something like this up? Do you know if there are any examples online? Or just create a simple T & C s contract?

Not sure how to do this but as Im getting more and more clients on board I maybe should cover myself?

Hi bennyboy7,

I'd suggest that you simply include a brief blurb in your T & C contract. For new customers, it'll be easy to set up since they'll need to sign your revised T & C contract, while for existing customers, you should just sit them down to explain your new policy and how it will benefit your business relationship in the long run (and then get their signature).

In your T & C contract, you should include a section that outlines your "Payment of Invoices" policy. Here's an example I've seen in the past (I've just used your name as an example):

Payment of Invoices
1. bennyboy7 will be entitled to invoice the Customer on an interim basis at least monthly for progress payments for any Services performed or Products supplied during the previous month (or during any earlier period which has not previously been invoiced) together with such expenses as the Customer is required to reimburse bennyboy7. Such invoices shall contain such information and detail as the Customer may reasonably require to permit the Customer to account for the Services and Products (for instance, by attaching copies of any time sheets) reasonably prescribed by the Customer. See Schedule.

2. All invoices rendered by bennyboy7 are payable within Thirty (30) days from the date of invoice. The Customer agrees to pay bennyboy7 in full within this time period or the agreed upon payment schedule. See Schedule.

3. If the Customer fails to pay any invoice by the due date for payment, then without prejudice to bennyboy7’s rights under this Agreement, the Customer shall also pay bennyboy7 interest on the outstanding amount at the rate of 2% per month.

[RussellWebb]

Hey there Bennyboy.

Are you normally doing 30 day billing cycles? If it's the norm and everybody else is doing it, then you probably don't have a choice. We generally invoice and get paid 50% deposit and 50% at completion. We rarely let the billing extend into 30 days, you'd be surprised at how many of the bigger corporations will bend their rules when you lay out your terms early on. We do flex a little when we feel we're coming up to strong resistance... but we generally get our terms 90% of the time.

Other common terms to consider if your stuck in a 30 day cycle:

15 day net

2% discount Net 10 days

Update: Forgot to mention that I've been dinged by these extra %'s one time or another and it's usually done by the bigger corporations, or utilities companies, and of course the IRS (tax collection). It seems they could care less about the quality of the relationship... they just want to get paid.

I'm not so sure it's wise to implement for a small relationship based business. UNLESS they're lousy payers looking at 60-90 day cycles consistently... Do you really need these clients anyway? You could just tailor your increased terms to these deadbeats!

[David Castro]

paid 50% deposit and 50% at completion

is the way to go. I remember when I started developing websites, and it would take for ever to get paid. That doesn't happen anymore

[bennyboy7]

Thanks guys! So much to think about!

I think...

paid 50% deposit and 50% at completion

Is a good idea, Im currently invoicing when work is complete, then asking for payment after 30 days, if payment hasnt been received by day 30, I send out another reminder to pay within 7 days or else.

But going to court under a certain amount isnt worth the hassle, I wish some companies would get there act together (rant over). Also offering 2% discount Net 10 days is also good too!

Do you really need these clients anyway?

Very true but sometimes its easy money for the work involve, I guess its just getting the balance right!

Thanks Kevin for your example, very clear and to the point, Im sure I will be implementing this in the future.

[Kevin Lee]

Thanks Kevin for your example, very clear and to the point, Im sure I will be implementing this in the future.

Anytime bennyboy7, glad I could help

A website company I once worked with in the past charged me 50% upfront upon signing the contract, then 40% when I approved the working beta version and finally 10% once the production site was launched.

I think this was a good payment plan for both parties involved. Waiting for 50% of the payment upon completion can still be risky for any small business.

[Julianreed]

One way to keep complete track of your invoices is to use send online invoices. This ensures that you receive your payments timely and as a result your companies cash flows improve dramatically. You can keep track of each and every activity of your client stating the outstanding and credit amount. So you know which client owes you what amount of money. Besides, many online invoicing applications provide time tracking tool which helps in billing each and every second of the time spent in working on a particular client project and by which employee.

Julian Reed
http://www.invoicera.com

[litekepr]

Hi All

I was reading an interesting article when I was in my bank the other day.

It said that more and more companies are now charging interest on invoices that are paid late. Does anyone use this method?

I think it could damage your relationship and decrease anymore work with the client? What do you think? Its a tough choice...

That's always been a common practice in businesses I managed and companies I dealt with. Utility companies and many other businesses do it all the time. There can be some exceptions, but its a good practice to have in place. It is a definite way to encourage people to pay on time. If there is a good reason not to pay a bill on time, then the fees can be waived. You can also take a page from the credit card companies and charge interest and a past due charge for delinquent accounts.

Shri

[litekepr]

Honest small business owners will do a good job, while honest clients will honor their commitment to pay their invoices on time

True words indeed, 9 times out of 10, All my clients seem to pay up, its sometimes the ones that Im more friendly with take a while! How would you go about setting something like this up? Do you know if there are any examples online? Or just create a simple T & C s contract?

Not sure how to do this but as Im getting more and more clients on board I maybe should cover myself?

In the past - I've included a blurb at the bottom of each invoice that states the interest rate due on any unpaid balance and a notation that a $25 late fee can be assessed on the account. This puts the info in front of the person and it is simply a part of your business policy.

Shri

[GT Bulmer]

Hello:

My invoices say "Due On Receipt" and the only problems I've had with late payments were due to extraneous circumstances.

I see nothing wrong with Shri's recommendation - as she mentioned, it is common practice. I think the key is to determine a policy, state it clearly on your invoices and include it on every invoice to all clients for consistency.

For your "good" clients, you can waive or overlook the policy if you choose. If they ask you about it, you can give them a wink and tell them you unfortunately had to put it on the invoice because of some "problem" clients ... but if you do tell them that, NEVER name names!

For your "bad" clients, you can make a special note of the policy along with a warning the next time they transgress, and then follow through with the policy (charge 'em!) if the situation warrants it.

GT

[litekepr]

Hello:

My invoices say "Due On Receipt" and the only problems I've had with late payments were due to extraneous circumstances.

I see nothing wrong with Shri's recommendation - as she mentioned, it is common practice. I think the key is to determine a policy, state it clearly on your invoices and include it on every invoice to all clients for consistency.

For your "good" clients, you can waive or overlook the policy if you choose. If they ask you about it, you can give them a wink and tell them you unfortunately had to put it on the invoice because of some "problem" clients ... but if you do tell them that, NEVER name names!

For your "bad" clients, you can make a special note of the policy along with a warning the next time they transgress, and then follow through with the policy (charge 'em!) if the situation warrants it.

GT

Better to have the policy in place - in case its needed. Like you said, as the business owner, we can always choose to let the fees and interest slide for special circumstances, but its nice to have that in print for customers who have a problem paying on time. We are all in business to make a living and for a quality job, we are entitled to be paid

Shri

[Julianreed]

Hi

On a personal note I would suggest that it is better to have a clear cut policy in this regard. There should be some grace period after the due date say may be a week, after which a fine should be charged. This policy should not be considered for your regular clients. As far as your regular clients are concerned I am sure that it is very seldom that payments are not received on time. And in case they fail to pay on time even then they can not be charged with the fine.

Julian Reed
www.invoicera.com

[litekepr]

Hi

On a personal note I would suggest that it is better to have a clear cut policy in this regard. There should be some grace period after the due date say may be a week, after which a fine should be charged. This policy should not be considered for your regular clients. As far as your regular clients are concerned I am sure that it is very seldom that payments are not received on time. And in case they fail to pay on time even then they can not be charged with the fine.

Julian Reed
http://www.invoicera.com

What about regular clients who have situations that change? In the current financial climate - people who have always paid their bills on time, are finding it hard to pay their bills. Could be less business or they could also be having problems collecting money due to them.

Its more "fair" to have a policy that is used "across the board" and then the owner can make individual decisions to waive fees when it is a special situation. This also encourages clients to stay in touch and let us know if there are financial difficulties.

One of the businesses that I sent bills out for, had a lot of trouble collecting from the owner's friends because they felt they should be exempt from company policies - one of these "friends"even filed for bankruptcy unexpectedly when they owed the small business owner thousands of dollars. Before that happened he didn't want to make a policy apply to regular customers -- he's changed that now

Shri