Treasa: 0:00

Welcome back to day four with our guest host, Melanie Padgett Powers. This is our last question of the week, but not our last episode. Make sure you join us tomorrow when we take a deeper look at Melanie's business, how she runs it and how she manages her clients. Today, however, we're going to look at the topic of clients who pay late and the resulting cash flow issues you can face in your business. Melanie has some great thoughts on this topic. I know you're going to love it, so let's get right into it.

Treasa: 0:33

If you're a freelancer, business owner or anyone who deals with clients, you're in the right place. I'm your host, Treasa Edmond. I've been dealing with clients and running my business for nearly two decades and in that time I've dealt with my share of doubt, imposter syndrome and not knowing what to say when a client asks a question I wasn't ready for. I created this podcast to empower you with the boss responses you need to grow your business. Each week, my guest co-host and I will bring you five episodes packed with practical insights. Monday through Thursday, we answer your questions, and Fridays we dive deep to explore how our co-host embraced their role as the boss of their business. Welcome to Boss Responses. We are back for day four with and Melanie, I have a question that I would like you to answer first today. Okay, the question is for the first time since I started freelancing, I have a client who consistently pays late. This is causing cash flow issues for my business. How can I fix this without stepping on toes? Well, first, don't worry about stepping on toes.

Melanie: 1:48

I know that's a natural inclination, I feel like this too. But you provided a service and they need to pay you on time or they need to find someone else. But I would first analyze where the problem is. If this is an individual or a small business owner and the problem is them, that is different from a large organization or corporation, because in that ladder, where I work with large associations, the problem is not usually the accounting department. Right, they pay gazillion bills, they pay them on time. It's not usually the problem. Usually the problem is with your direct client. I'll get to that in a second.

Melanie: 2:26

But the other thing I would do before I analyze where the problem is, is stop working. Stop working for them immediately and let them know, map out the problem, send them an email and say for the past X number of months you've consistently paid this many days late. My invoices are due within 30 days of receipt, until invoice 123 is paid and we figure out a solution to this ongoing problem. I must haul all of my work with you. I like the word halt. It seems very strict and serious and determined. I'm very clear I must halt all of my work with you.

Treasa: 3:01

I've never used that. I love it. I'm adding it.

Melanie: 3:03

I actually had to do this earlier this year because I was not getting paid and there was a lot of problems. But I was like, whatever the problem is, it doesn't matter, you're not paying me, so I'll help figure it out. But right now I'm halting and that usually kicks them in the butt. If they're working on a project, they want you to continue. And if it's a solo business owner, an individual or small business, I'd probably just stop right there and see what they say, especially if they owe you money right then. And then I might start to offer solutions after I get paid or depending on what their response is.

Melanie: 3:39

Again, when it's a larger organization, it's usually the individual that you're sending the invoice to. Maybe your direct client is the one that's going to be paid. Direct client isn't submitting the invoices on time or properly to accounting, maybe it gets lost in their email. So one of the first things I'll do is say can you please put me in touch with your accounts payable or your accounting department so I can set up direct invoicing with them. And often I'll have clients give me the accounts payable email address and I'll just start sending my invoices directly to them and I'll CC my client Right, and then I get paid on time. And if they bulk at that for some reason, it's like well, you're not paying me and unless I can start sending these to accounting and ensure they're getting paid on time, we're going to have to end this relationship.

Melanie: 4:25

Sometimes it's a little more complicated. I would just call the organization and asked to speak with someone in accounting and explain the situation and see what the problem is, because they might say, oh, we had no idea. We get the invoice. They might be saying something different from your direct client. Or they might say well, you're sending it from your FreshBooks account and we require a PDF. Well, no one ever told me you require a PDF and so that's simple Like and that's an easy thing that I would agree to. Sometimes you could just call them directly to figure it out. I would also always ask for I like getting paid by direct deposit. I know people have different ways of getting paid, but I would make sure that I set up direct deposit upfront. I've had paper checks get lost in the mail, plus, I take a few weeks to arrive. The postal service has gotten. There's been all kinds of problems in the last couple years, right.

Melanie: 5:16

Yeah, I actually just this year had a check stolen from the mail system. It was my client's check, so I wasn't out any money, but this is why I wasn't getting paid and they were not taking it seriously. And there was some turnover in the staff and I kept saying the check hasn't arrived, check hasn't arrived. And their accounting department, which was outsourced and which is no longer who they use, just kept saying, well, it took them a while, but they finally said, well, we paid her on such and such. And I was like, no, you didn't, can you look at the check?

Melanie: 5:47

And they just didn't take it seriously and I halted work for about six weeks and I got a new client liaison and that person took it seriously and pestered the accounting department and they found out that someone had stolen the check at some point and taken my name off of it and put their name on it and cashed it. And so once they realized these thousands of dollars were actually stolen from them and they still had to pay me, suddenly they were very concerned because they wanted their money back. But all the time and effort I had to do and there was a lot of problems and the people that were problematic are no longer there for other reasons that nothing to do with this. So I'm still working with them because those problems are no longer there and they have kind of worked out the system. But it took me stopping the project for six weeks, which delayed it, and it definitely. But I mapped it out very clearly in an email why I was halting the project because I had not been paid.

Treasa: 6:45

That's a nightmare situation. I've never had a check stolen. I have had clients write bad checks and you get stern really quickly with that. And that's back when you had to include the verbiage in your agreement that bounced check fees they paid. That's crazy. I love ACH, your direct deposit. I will accept payment by credit card. But then of course you have the fees, which are business fees, and people are always trying to push them back on the client. But I don't do that because I don't think it's fair. But I prefer ACH. I think that's great and set it up up front. I definitely set it up up front.

Treasa: 7:25

I also stop working. I place a project on hold but I'm going to use the word halt from now on because that's amazing Like a soldier Right. And if I have a client that I want to keep working with who consistently pays late, I will go to them and I will say you know, we're obviously working pretty regularly together. We're going to change up the system. We have two options here. One, we can work on a retainer where I do a set number of projects for you a month. You pay at the beginning of the month. The work doesn't start until the payment hits my account or I will invoice you as soon as we sign an agreement on a project. Once that invoice is paid, then I begin the project.

Treasa: 8:09

So I love retainers. I think they're great. Nobody has to wonder what's happening when they have amazing guaranteed access to my schedule so they can send me projects and then I get them done. It's a no-brainer. But I also don't mind the one-offs when they pay in advance, and I actually started asking for a 50% deposit on all projects for continuing clients because of situations like this and new clients always pay in advance. In my world it's just. I have too many other things to do. I don't want to chase down mispayments. It's one of those things that I will remediate the situation in any way possible before we start. And if they don't want to do it that way, I just don't work with them. That's the old cranky me talking.

Melanie: 8:57

Well, I think those are great solutions to the paying upfront, and I'm not going to start this until you pay me. I think those are great solutions. It really depends on your industry and the services, of course, because, as those of us who are doing like I'm, working for these associations, they are never in a million years going to pay me upfront for work I haven't done yet. So, luckily, most associations are really great about paying. These are established businesses and, like I said, the problem is usually the direct client. But I fired a client last year because they consistently paid late and I loved the project. I loved writing for them. My direct person was fantastic, but unfortunately their boss is the one that had to accept the invoices and had to submit them to accounting. And I had conversations with them and it just was inconsistent and they weren't even. I wasn't even getting that much money from them and I was thinking it's like as much time and effort as I was tracking down these payments and then I would get a payment. And it wasn't a cash flow issue, it was. I got a check in the mail randomly three months late. What is this? Even for which invoices is this for? Cause they might be out of order. It was just a big mess and I was like I can no longer work with you. So I If it's a headache, walk away.

Melanie: 10:10

Yeah, I wanted to address the cash flow part too. Yeah, so I want to be empathetic here, because I understand that things happen and not everybody can have money in the bank and a big savings. I do want to say the cash with the people paying late. It is a hundred percent the client's fault if they don't pay you on time and you have invoiced them. Now. Sometimes things do happen, though, and you can be really strict about this and set up all the guidelines and fire those bad clients. But maybe your client was on vacation or they left and you have a new person and nobody knows who's who got the invoice. Or maybe they just honestly forgot one time to submit the invoice.

Melanie: 10:50

So things are going to happen, and if you have a consistent cash flow issue because of one late payment, that means you're living paycheck to paycheck, right. This is normal when you're starting out as a freelancer or, I understand, whatever your personal situation might be Maybe you're recovering from an illness or you're changing niches, or whatever I get it but I just want to make sure that everybody is thinking about not having cash flow issues. Not, I don't worry when I'm annoyed when a check is late, but when that check got stolen and I didn't get paid thousands of dollars for four months, it didn't affect my income or my bank account or meet my ability to pay my bills. It was just annoying and I wanted to take it care of.

Melanie: 11:34

So you really need to set your financial goals higher to make sure that you're saving money, and that will mean the marketing and the outreach to get more clients, get more consistent clients, because you really want that money in the bank. So, yes, you can be annoyed when things are late, when money is late, but you're not going to be hit financially. You will have the money to cover it and I never have to think about and that also helps if one month is down in income compared to the previous month and I don't hit my financial goal that month, it's never going to hurt my ability to pay my bills. I don't worry about cash flow. It's very rare that I have to worry about cash flow and that also means I don't panic 30 days after I sent the invoice, where is the money? Because things happen and it's just a fact of life.

Treasa: 12:26

And especially bigger businesses. They pay 30 days. Like you said, if the invoice is delayed 10 days and they get it, they're still paying 30 days. The accounting offices do not have wiggle. This is a business, it's not a paycheck. So unless your business is paying you a paycheck, then you can't count on a regular paycheck. You need to build a cushion in your business. I totally agree with that and I have a book recommendation here. If you are listening to this and you are struggling with cash flow issues and how to build that cushion up, read the book Profit First. It's amazing. It will help you set up your business like a business with bank accounts that will take care of taxes, take care of all of this stuff. None of your expenses should ever come as a surprise and a client who pays late or five clients who pay late they should not impact the cash flow of your business period.

Melanie: 13:20

Yeah, that's a great book recommendation. I read that years ago and I've heard other freelancers recommend that as well.

Treasa: 13:27

Yep, it's a great way to start. All right, join us tomorrow as we talk all about Melanie's business how she got started, what she does, how she handles her clients. Thanks for joining us and we hope what we discussed today was helpful.