Episode 98: What to Do When a Client Pays Late

Welcome to the Creative Minds Smart Money podcast, where we turn financial confusion into creative confidence. I’m Samantha Eck, bookkeeper and fractional CFO for creative entrepreneurs. Each week, I’m sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you’ll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations.

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Have you ever had a client not pay you on time? Because if you have, then this episode is for you. I can count on my hand the number of times that I’ve had a client not pay on time. And that’s mainly because I have auto pay set up with all of my clients, but it’s mainly because maybe they didn’t have enough in their account, maybe the payment bounced, something like that. So that is why usually, if I don’t get a payment on time, it’s not on time. I will tell you, the one thing I always feel whenever I have clients who don’t pay me on time is fear. Because, you know, I’ve already pre-planned around that money, especially when you’re thinking of cash flow forecasting, especially when you’re thinking of budgeting, especially when you’re thinking of all of those things, you’re thinking about how easy and how good it’ll be to work with what you have already, but when they don’t actually deliver, that’s when it can really end up hurting you.

So obviously chasing money is one of the most uncomfortable parts about doing business. And there are a lot of people who don’t have to do that. If you run a Shopify store, usually you’re not shipping anything until they’ve already paid. I will say I have seen times where people have come back and done chargebacks, obviously, but most of the time, you’ve already got the money, so there’s nothing to worry about.

If you are a web designer or something like that, though, there’s been too many horror stories I’ve heard of all the time about people not being able to get the money that they need. So obviously today we’re going to talk a little bit about what to do when someone pays you late and also how to not burn that bridge because I think a lot of the time we get in our minds, oh my gosh, this person is being rude to me or something like that, but we don’t actually know what their situation is. And that’s not to say that it’s right. That’s not to say that it’s right that they don’t pay you 100% if you did the work or if they have agreed to pay you at a set time, they need to pay you. But we want to make sure that we are thinking about that and everything like that.

Obviously again, a late payment in your business is going to cause you to have a little bit of an issue, especially if you budgeted or cash flow forecasted, especially if it was a large payment. You know, let’s say you have 15 clients and this client is a $3,000 client and you make $15,000 a month and now you’re down to $12,000 without that $3,000 client. It can impact a lot, right? Because $3,000 — I’m sure you’ve had plans for that $3,000. Maybe that was your pay. Maybe that was going towards a new project that you guys were working on, whatever it is. So obviously that does impact your business.

So it matters, even if the client eventually pays, it matters because you would plan on having that money at that time. So of course, you know, if you had planned to have money on the 15th and maybe had committed that money by the 16th and you don’t have that money, now it’s causing some sort of stressor, right? Because you don’t actually have it and it’s causing a lot of issues. So late payments can create a ripple effect across the entire month.

So they can really cause you issues because if you had a payment that you were expecting on the fifth and now it’s not paid till the 25th of the month, you know, that’s money that you were missing throughout the month. Now you have to reallocate. You have to rethink your whole plan for the month, especially if you’re someone who does pre-plan. Like with a lot of my clients with our cash flow and budgeting, we pre-plan for that entire month. So obviously that income going missing is going to set us off. Now a lot of people are set up on auto pay, but there’s been times where people have committed to paying certain things. Like maybe they’re onboarding or something like that and they’ve committed to pay and they haven’t. So it’s not just an inconvenience, right? Like when people don’t pay, it’s not just an inconvenience. It’s obviously a business risk, especially when you have already accounted for, like I said, and thought of that money, especially if they’re a client who — maybe you have a contract, you have a six-month contract and they’re supposed to stay with you for six months and this is only month two and they haven’t paid you. And now you’re like, I’m supposed to rely on that income for six months. There’s so many different scenarios that cause you to have this huge risk and this huge stress when it comes to those things.

So obviously before it happens, what systems can we have in place for late payments before they occur? And obviously that’s auto pay. So having auto pay and having a card on file that you can charge. Now, obviously in my case, in many of my clients’ cases, even having auto pay on that can cause an issue because maybe their card is maxed out, maybe they don’t have enough money in their bank account — that is obviously going to create some sort of issue because even if you have auto pay, the payment isn’t going to go through. So obviously having clear payment terms within the contract and saying, you know, regardless of what’s going on, if I don’t have notice, you still owe X amount or you still owe that month. Okay. And then obviously late fee clauses. Even if you never enforce the late fee clauses, you still want to have that in your contract and make note of that and say, okay, you know, if you don’t pay by X, you’re going to pay 10% of your contract. It’s a psychological thing, right? Because if someone sees that they are going to pay extra if they don’t get on it right away, they’re most likely, more than likely, going to make sure it’s paid on time every time. And then obviously having deposits and partial payments upfront. So if you’re working on a website, making sure you have a deposit or something like that to make sure that you have some of that funding secured.

So before you even start that relationship, having those things in place is going to be so vital for you because it’s going to ensure that most of your payments come through with little to no issue, if that makes sense. Now, obviously, again, there are going to be occasional times where you’re going to have an issue regardless. But if you have all of those clauses and all of those things set up, it’s going to cause it to happen less often and maybe just once in a blue moon. So it’s a lot less stress.

So what do you do, of course, when a payment is late? Like, what’s the process when it doesn’t come in on time? So obviously, it’s a little awkward. It’s a little awkward to follow up with someone and be like, hey, you owe me money. I think we all feel that way as business owners who mainly work online. As someone who is very in touch with the online community, it feels awkward to be like, hey, I want to get paid. And I’ve seen too many posts online where people have talked about not getting paid and then they go online and talk about how this person hasn’t paid them. And please, if there’s one piece of advice I can give you, it’s don’t bring that into the public. It’s not only embarrassing for you, it’s embarrassing for them. And maybe they committed to pay you by the first and they also got a late payment, and that’s the reason that they haven’t been able to pay you, but they are going to pay you. So yes, it’s inconvenient for you, but I think it really depends on the situation. Now, if someone ghosts you and they don’t talk to you for months, that’s a different story. But if they’re being very communicative with you, again, you kind of have to hear from their perspective. It’s so awkward, though, right? Because we don’t know what’s going on in their life. And we’re freaking out on our own because we’re like, oh my gosh, like, what’s going on? Why don’t I have money? There are so many different things that go into this.

So obviously, the first reminder that you’re going to send them is going to be friendly. Assume it was an oversight. Do not assume the worst. Don’t be like, oh my gosh, you didn’t pay me, what the heck? Just say, hey, I need payment by X date. We had committed to a payment on this date, but I need it by X date. If we are going to continue work, stop doing the work. So if you’re a website designer and you have milestones and they have not paid the second milestone and you need to continue to do the work, stop. Don’t continue to do it. I know it sucks because maybe you planned around doing this, but stop — honestly 110%. It’s more worth it for you to not do the work than to risk doing the work and not getting paid for it, okay?

Then the second reminder is obviously a little bit firmer. So if they haven’t paid by — maybe you set a date and the date passed and they still haven’t paid — make it a little more firm, reference the contract that you guys had in place, reference whatever paperwork or protections you have in place. And obviously the third is a formal notice and that’s where you pause work if necessary. Now for me, because I get paid in the month coming up — so for example, I get paid April 1st for work being done in April — if I don’t get paid April 1st, the work kind of pauses because we’re like, hey, we haven’t been paid for this coming month, so we’re not going to be doing the work.

So obviously having some sort of templated language does make it a little easier because we’re trying to be professional and not get personal, if you know what I mean. Not attacking, but going after someone and being like, hey, I need this money because I need to pay myself, isn’t going to make someone pay you faster, right? So the more professional and approachable you make that whole process with late payments, the more likely you are to get paid and the less likely you are to run into any sort of personal or emotional issues.

Obviously, if they have personal or emotional issues, that’s on their end — they need to sort through that. But on your end, you want to make sure that you’re coming across professionally. And honestly, maybe it was an accident. By the third reminder, I don’t think it was an accident, but at least the first time, if they pay, it’s not a big deal.

So obviously, there is a harder conversation you have to have. You have to analyze when a late payment becomes a relationship problem versus just something that’s generally administrative, right? So how do you decide to keep working with a client who pays late repeatedly? So if it happens once every seven months, every eight months, and it’s not the same client, it’s a bunch of different clients, you know, it’s not as big of a deal. However, if it happens very consistently and it’s all the time, that’s when you have to start looking at it. If it’s a pattern versus a one-time situation, that’s when you have to understand that it’s more of a relationship problem and less of, you know, just an administrative problem — maybe they forgot, maybe their VA is the one who sends the payments and she forgot, whatever it was. Because if you have someone who’s chronically paying you late, you cannot plan around that, right? Because you cannot commit yourself to actually receiving the money on time. So if they’re a $3,000 client and you’re consistently relying on that $3,000, you can’t really rely on that $3,000, right? Because it’s never coming in on time.

So in the event that that is just a repeat situation, you should have had a clause in your contract where if you have late payments, whatever — after non-payment, we can end the contract either immediately, et cetera, et cetera, whatever it is. Having some sort of language — obviously consult with a lawyer about this to make sure that it’s really sound and really firm — it’s time for you to kind of separate yourself from that situation and part ways and just let them know how many times they’ve had late payments. You understand that things are going on in life. Again, make it professional because you don’t want to burn a bridge. You don’t want to be like, I never want to speak with you again, because maybe this person is just going through a rough point in their life. And again, this is no excuse, obviously, because they need to pay you. You need to get paid. And they’re just having like the worst time of their life. Six months down the road, they could be a better client, but that doesn’t always happen. I’ve known clients who are just bad payers in general, and that’s not your fault. That’s something they need to work through. But obviously again, you want to make sure that you’re being professional and just letting the relationship go well. Because if you burn that bridge, you don’t know who they know, or what rumors might get spread, or whatever it is. There’s just so much that happens in the online space and you’re safer being professional and being like, okay, we’re going to do this, and just letting it go and being like, okay, we’re sorry, we’re not going to be in this professional relationship anymore.

So obviously if you have that language in your contract, it makes it really easy to just be like, I’m sorry, our contract is over.

So when you are dealing with these late payments, the one thing that I want you to think about — the one mindset shift that I want you to think about — is that it’s not personal. I know you’re stressed. I know you’re like, oh my gosh, I need that money. You need to think of this from a business perspective, not from your personal perspective. And I know that’s really hard to detach yourself from, but from the business perspective, you need to think about the bills you have to pay. Maybe you have employees, maybe you have software, maybe you have things that you’ve committed to. Think about that stuff. Think about the future and remove yourself from it personally and say, okay, how’s this going to affect my business? And that way you can approach it from a more professional standpoint.

So obviously what you need to put in place this week, if you listened to this episode and you haven’t had any of that stuff in place — looking at those late fee clauses, adding that late fee clause to your contract, having auto pay on file for any of your retainer clients so that you are making sure that they are paying every month just on repeat. HoneyBook can do this, Dubsado can do this, Stripe can do this. There are so many different softwares that can do this. Just get them on auto pay. And you don’t even have to handle their card information a lot of times — they can do it. And then obviously having the clear payment terms in your contract. So if you don’t have a lawyer review that, make sure that’s really solid and really firm. And then implementing maybe a deposit or payment upfront just so that you are not doing work that you’re not getting paid for, okay?

As always, you guys, if you enjoyed this episode, please like it, share it, subscribe. Let’s get everybody in here. Make sure you share it on social media. I appreciate you guys so much. Thank you so much for listening to me for so long. We’re almost 100 episodes — we’re just a couple away. If you ever need anything, feel free to reach out to me: Instagram, email, whatever it is. I’m here for you guys. I want to help you have that professional financial education. And that’s what I’m here for. I’m here to answer questions, even if it’s just, hey Samantha, do I need to categorize something this way? Whatever it is. As always, I wish you the best week ever. We’ll see you next week.

Farewell, fellow travelers.