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Today on The Five I will be covering collections, a topic that affects most of our readers on a weekly basis. When I first started as an intern structural engineer at my current job after graduating from school, I didn’t have any idea that the AE industry had a major problem with collections. In fact, it still blows my mind that some companies let their bills go unpaid for such a long time. Where’s the honor and integrity?
You might think that collecting is something that is completely out of your control, and that the only answer for a stubborn client is legal action. The truth, however, is that you can substantially decrease your number of unpaid invoices in many ways. Furthermore, these methods won’t leave you drowning in legal fees as you try to collect your hard-earned money. Here are five ways you can collect your consulting fees from your clients in less time.
1. Use PayPal
Many people don’t know that you can send free invoices to your clients using PayPal. Upon receiving an invoice via PayPal, your client can instantly pay by entering a credit card or by using their own PayPal account. It should be made clear, however, that they do not need to have a PayPal account in order to pay you. It’s that easy for both you and your client.
The simplicity of the PayPal system is what makes it so effective. When you send a standard invoice to your clients, it’s very easy for them to forget about it because there are multiple steps involved. First they need to write out the check, then they need to stick in an envelope and slap a stamp on it before finally putting it in the mail. This may not seem like much, but to a busy, stressed business owner, it’s valuable time that could be spent doing more valuable tasks.
When you send your client an invoice using PayPal, there is only one step that they need to complete: entering a credit card number. It’s easy and its convenient, and that’s why it works. When we started invoicing using PayPal at the AE firm I work for, we saw very positive results. Our clients told us the simplicity of the system is what incentivized them to pay immediately.
I should probably note here that PayPal does charge a small fee if a client pays your invoice online versus sending a check. The fee, though, is a small price to pay if it means that your cash flow is getting stronger.
2. Be Thorough
Picture this: your client just received your invoice for $3,455.34 and they immediately start to ask themselves why they owe you this money. The only identifier at the top of your invoice is a job number and project name. This invoice, however, is just one of many small add-services for a job that had an original contract amount of $40,000. After a few seconds of pondering, the client makes a mental note to get in contact with you and inquire about why they were charged another couple thousand dollars. Then they set the invoice aside, and it gets lost in an ever growing stack of papers.
There is one way to fix this problem: exercising greater attention to detail. When you are charging for an add-service, you and your employees should keep detailed time sheet notes explaining each task performed and how long it took you, down to the half hour. Itemize these notes on the invoice. Now when your client gets their invoice, they will be able to see exactly why they are being charged and you avoid any additional back and forth.
3. Require a Retainer
A few months ago, at the AE firm I work for, we had a new client offer to pay us upfront for the design services we were going to perform for him. We respectfully declined the offer and told our new client that he did not have to pay us until we complete the job.
Fast forward to the present, and we are definitely regretting our kind decision. We finished the job and have not collected one cent of our fee from the client, and we have somewhat given up at this point.
I highly recommend using a retainer whenever you are working with a new or unknown client. If they intend to pay you in the end, then they should not have any problem giving you a portion of the fee up front. As my boss, Jared Perry, always says: “Sometimes your best clients are the ones that you never work for.”
4. Send Reminders
This may seem like such an obvious thing to many business owners, but you would be surprised at how many don’t do it. Send a friendly reminder 5 days before the invoice is due and, if the invoice is still unpaid, 5 days after the invoice was due. The simple fact is, many of your clients are forgetting to pay you because it’s not at the front of their minds.
If you decide to go the PayPal route, they already have a built in service that allows you to send these reminders automatically. When my company started using these reminders, we immediately saw an increase in the payment of our smaller invoices. Just be polite in your language and these reminders will work.
5. Stop Your Service
If all else fails, you can take a somewhat more aggressive approach to getting your money. You are probably working on current jobs for some of your clients that haven’t paid. Next time they call you and say that they need you to make a revision to one of your drawings, kindly tell them that you will take care of it once they pay their current invoice. This is the only leverage that you have aside from legal action, and that is not going to shed a nice light on you in the eyes of your client. You can’t be afraid to play a little hardball.
Life is not always fair, and that is why you sometimes do not collect the money you have earned. I can’t guarantee that these 5 methods will make you collect on 100% of all your invoices, but I would be very surprised if you don’t see a spike in checks coming through the mail (or the internet, if you decide to use PayPal). If anybody has any other methods that they have found to be useful, I would appreciate it if you would post them in the comments so that all of our readers can benefit!
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