Often one of the first things I ask about when I sit down with a new client is how they collect payment for projects because it tells me a lot about how the business is run overall, and its strengths and weaknesses. There are many ways to do collections with class, but you need a process in place for it to work.

Having an honest conversation (and ongoing dialogue) with my clients about what’s going well and where I can help them improve is an essential first step in making their lives much easier.

We’ve explained why you need a collections process before but here we take it a step further and show you how to keep your communications classy, collect the money you’re owed, and preserve the client relationships you’ve worked hard to build.

Collections with Class

Create and Communicate a Standard Collections Process

When it comes to collecting payment, create and implement a process that states:

• Expectations regarding payment amounts, invoice and payment dates, late fees, etc.
• Which follow up actions will be taken on your end
• Who will take them, and when

Doing this takes the guesswork out of payment collection for both you and your clients, saves everyone time, and builds trust. You also want to make sure your payment terms are clear on your invoice.

Accept and Integrate Feedback

Your current clients are directly affected by your policy, and that makes their feedback valuable.

While you should never compromise your deeply held principles, ethics or values in pursuit of business, sometimes you can adapt your process to accommodate clients’ needs. Every situation is different but beware of letting what could be a fantastic opportunity slip away over policy-related issues.

Having an honest ongoing dialogue allows you to improve your relationship, retain clients and onboard new ones. Trust me, feedback is a good thing! Without it, you’d lose clients without having the opportunity to consider their points and propose solutions that will work for them and any future clients you acquire.

Strike the Right Balance

Striking the right balance with your process is somewhat of an art form. After all, you want to be assertive and get paid, but you don’t want to scare your clients away with overly aggressive terms or language. Totally doable.

First, we’ll look at an example of a process that is too aggressive:

Some time ago, I was looking to hire a VA for my own business and came across one with an oddly aggressive late fee policy. Although her collections policy stipulated she must be paid up front, it also stated that invoices were due within three days of being issued and a $25 late fee would immediately be charged on any invoices past due. Even if it was only 1 day past due.  

Now, typically most late fees are not applied until an invoice is 28+ days past due and I have never seen one that charged more than 5% and this one was equal to 9%. So I politely voiced my concern with this policy and asked if we could meet in the middle – a 5% late fee added at 15 days past due.

She wasn’t interested in negotiating.  

Good on her for sticking to her guns but the decision was entirely fear based. She instituted the policy after she had a client default on an invoice that she had already done the work for. A late fee policy isn’t going to help with that of course but sticking to a policy of payment in advance of service would.

As a result, she walked away from a lucrative contract and subsequent referrals all because her fear of being taken advantage of made her extremely risk-averse.

How could she have laid her fears to rest? There’s no harm in asking for referrals from a potential new client’s current vendors and following up with them. It’s not a common practice in our online environment but not unheard of.

Lesson: Always look at your policies with a critical eye. Is the policy you created based on accepted practices? Know in advance what policies you’re willing to negotiate on. Ask yourself if the policy is going to serve you in the way you expect?

Here’s an example of a process that is too weak:

My assistant Grace used to work for a dentist office, and shared this story with me:

“When I first started working at this office, they had no formal collections policy. Their idea of accounts receivable was to call once or twice – if the person working there remembered to do it. By the time balances were even noticed the account would be at least 60 or 90 days past due! Half of the time these patients who owed money would come in for treatment and the receptionist working wouldn’t even ask for the outstanding balances. It was a nightmare.

Every now and then the office manager would review the accounts and freak out over how much money the office was owed (in total about $67,000!). Something had to give. Another new co-worker (who had an even more extensive collections background than me) put together a policy that we firmly stuck with. In the nine months I worked there, we managed to collect $58,000 of the overdue accounts and can happily report the A/R was NEVER that high again!”

Pro tip: If you don’t fix the problem, it gets even more difficult to ask for payment after you send a second invoice. It’s important not to let this happen because as the amount due grows, it becomes tougher on both you and your client to resolve the situation. Implementing an enforceable collections policy that clarifies expectations on both ends and states how and when you’ll follow up will ease everyone’s minds.

Here’s an example of a process that is just right:

I don’t like to toot my own horn, but my own policy works very well for my company. New clients pay a non-refundable deposit up front with the balance due halfway through the month.

If they don’t open an invoice within a couple of days I send a quick personal email making sure they received it. Typically, that’s enough but every once in a while I need to send another follow-up ten days later.

As for late fees, clients must pay their invoice within 28 days or face a late fee equal to 2 percent of the project’s total cost (which I have never had to enforce but it’s there just in case).

Pro tip: Don’t skimp on your bookkeeping/invoicing software. Use a system like Quickbooks or Xero that lets you see when a client opens your invoices so you can follow up accordingly.

Follow your policy

Even the best policy will only work if it’s expressed and followed. Once an agreement is reached, you should stick to it. However, you also need to…

Know when to bend

A little while ago I had an experience with one of my long-time vendors (whom I love) that left me contemplating phasing out of our relationship. I was late on an invoice, 100% my bad. Their reaction? Four emails about my invoice within 2 weeks of the invoice date.

It felt pretty aggressive to me, and I shared my feelings on it at the time along with heartfelt apologies for having been late. After then it was smooth sailing for quite some time. I hate being late, after all.

A year and a half later I’d expanded my services with them and we’d established a regular working relationship. I even referred them to everyone I knew. All was well, but then something odd happened.

One of my clients was using the vendor and having me handle the billing for them. That client had added an extra service to the account for the month but had forgotten to send me the extra funds to go along with them. It was a relatively small increase compared to their total bill (less than $300), so I let the client know about the discrepancy and waited to hear back from them.

Once again I received several messages from the vendor asking about the invoice. When I spoke to them, I let them know that payment was on its way, and we were just waiting for the client to catch up with us. Strangely, this led to a note that they would stop my service (and my clients) if payment was not received in full in advance going forward.

Keep in mind: we weren’t even 15 days past due yet.

Now sure, that was their policy, and of course, I was at fault for being a bit late while we worked out the details with the client… But was I really going anywhere? We had been working closely together for a long time, but this situation made me wonder if our relationship perhaps wasn’t as close as I thought it had become.

Policies are policies, but sometimes a little flexibility is important, along with the occasional: “Thanks so much for letting us know the circumstances. We’ll follow up with you in a couple of weeks if necessary.”

Conclusion: Put Your Collections Process in Writing

Your collections process is one of the most important policies you’ll create for your business. Striking the right balance is a must – you’ll want to define expectations and follow up steps without setting overly aggressive terms and conditions. Communicate it in writing, keep it up to date, and revise it to ensure it meets the needs of both you and your clients. And remember customer service is everything – sometimes you should bend just a little.

If you’re still feeling overwhelmed, get in touch with Any Old Task. We’ll work with you one-on-one to create a process that gets you paid and keeps your clients happy!

Contact us at info@anyoldtask.ca.