The financial success of freelancers has a relatively banal but all the more important requirement: customers have to pay for the provided services. If they fail to do so or don’t do so on the agreed date, it can quickly lead to financial problems – especially for younger freelancers or those just starting out in their career whose bank accounts generally do not overflow with savings.
Should you ever notice that a customer simply does not pay you as agreed, we have compiled the following eight tips for you that will show you how you can still get your money as quickly as possible and avoid bad experiences in the future.
1. Contact your customer
If customers don’t pay or don’t pay on time, there can be many reasons. The invoice might have landed in the wrong mailbox or on the wrong desk. The responsible person in the accounting department could be on vacation. The money might have been transferred, but to the wrong account. Or maybe the invoice has never reached your customer after all.
So before you think about sending a reminder or contacting a collection agency, you should first ask your customer why you have not received any money yet. If your invoice simply got forgotten, your customer will usually pay you quite quickly and the problem is solved. If the customer has not paid the invoice because he has encountered temporary financial difficulties, you can propose a payment in installments or a partial payment.
2. Offer installments or partial payments
Especially small companies or start-ups can encounter liquidity bottlenecks that prevent the punctual payment of external employees. In this case, you should actively offer solutions. For example, you can suggest that the customer pays your fee in several small installments. Or that your customer pays half of the invoice immediately and the other half as soon as he has enough funds again.
This way, you will get some of your money right away and your account will not drop to zero. In addition, due to your willingness to cooperate, you will leave a positive impression with the customer, who might then approach you with new projects in the future.
3. Give a discount
If you are not happy with the payment habits of a customer, but can’t or don’t want to give up their orders, you should try to make a timely payment for your services seem more attractive. In this scenario, a common method is to offer a discount. This would mean offering your customer a discount (of about 2 to 5 percent) on your fee in return for a quick payment.
Since the discount would be a financial loss for you, you should only offer this, if you depend on receiving the money in a timely manner. However, be aware that if you start offering discounts, your customers will probably get used to it and permanently won’t want to pay as much.
4. Negotiate prepayments or downp ayments
If you have had a bad experience with a customer not paying in the past, but still decide to keep on working with them, you can demand more security for future projects. The safest option is, of course, to insist on a payment in advance. However, this might be something only a few customers will accept.
Still, especially for larger orders that require a lot of work from you upfront, it is quite common to agree on a down payment on your total fee. In this case, you might receive 30 percent of your total fee in advance, 30 percent once half of the project is done and the remaining 40 percent as soon as the project has been completed.
5. Agree on monthly fixed payments
For freelancers who work for the same customers for long periods of time, it is advisable to agree on monthly fixed payments. This is especially useful if your monthly order volume or invoices differ only slightly.
For this, you and your client will agree on a fixed rate, which is due monthly on a fixed date. This way, you benefit from financial planning security. Your client, in turn, does not have to adjust the payments each month. Instead, they can set up a standing order and therefore reduce the administrative burden. Different services can, of course, still be charged separately.
6. Use factoring
Another way to get paid quickly is factoring. With this method, you sell your claim, which is your invoice, to a bank or another financial company. They will either pay you the invoice amount (minus a certain fee) immediately or within 24 hours. After that, the company will contact your client and collect the invoice amount from them.
As with a discount, when utilizing factoring, you will waive a part of your fees. However, the advantage of factoring is that you can get the majority of your money stress-free and fast. Once you have sold your invoice to a factoring company, you are “out” and no longer have to deal with unwelcome clients.
7. Automate your invoicing
To process dozens of different invoices submitted every day is very time-consuming for companies. In addition, if invoices are incorrect or incomplete, the final payment approval may take several weeks. This is very frustrating for companies and freelancers alike.
In order to save you and your customers unnecessary stress, you should completely do without paper invoices whenever possible. First of all, they cost you more time and secondly, as mentioned at the beginning, they might be forgotten in the everyday office life. If you want to get paid on time, it is therefore best to offer your clients a simple online invoicing process. Several services now offer an automated invoicing and provide you with additional support for the successful collaboration with your clients. For students, these offers are almost always free.
8. Last resort: debt collection agency or court collection proceedings
If you have come to the conclusion that your client will not pay you for your services, you have two other options: Commissioning a collection agency or trying to get your money through court collection proceedings. In both cases, you have a good chance that the money will eventually end up in your account, but it might take several months or, even worse, years.
If you opt for debt collection, you need to hire a law firm or a specialized company to initiate an out-of-court collection procedure against your client. If the customer finally agrees to settle his debts, he usually also has to pay the costs for the collection agency as well. However, if the customer is stubborn, legal steps must be taken, for which you usually have to pay in advance. An alternative to a debt collection agency are court collection proceedings. This is a simple and cost-effective way to tackle defaulting debtors. You don’t need a lawyer for this as court collection proceedings are largely or even completely automated.