As part of a study conducted by Juno and YouGov, a survey asked 500 small businesses (including sole traders and SME decision-makers) the reasons that they do not get paid on time. Here are the 4 key reasons for late payment and how to fix them.
So, you’ve finally taken the leap and become a freelancer, sole trader, or small business owner and have managed to secure some regular work – great! That should be the first hurdle over and done with. But no one prepares you for having to grapple with late payments from your clients. This is why we’ve written this guide: to help you address the most common late payment problems you and your business will most likely face at one point or another.
Late payments affect most businesses
Whether you’re a freelancer paid by the day or the hour, or someone who works on a project or contract basis, we all experience dry spells in work every now and then. This makes timely payments from your existing clients super important in giving you the financial stability you need.
If late payments seem too familiar, you are not alone:
Among the worst affected industries are marketing (paid late 88% of the time), followed by the legal (78%) and retail (54%) sectors.
So why are late payments still not a thing of the past, and what can you do about them?
Reason #1: the client chooses to delay payments
The number one reason for late payments, cited by almost a third (31%) of respondents in our survey, was that the client is deferring payments out of choice. There may be different reasons for this but they certainly aren’t worried about the consequences of paying you late. You may want to let this slide, but be wary: accepting delayed payments, even just once, can set a dangerous precedent.
The solution: find out the reason for delay
It’s important to get to the bottom of why the client is choosing not to pay you. Are you both on the same page? Perhaps you have done some work for them and, for whatever reason, something has changed since you wrapped up the project. We recommend that you carry an end-of-project review so that you can incorporate any feedback and also learn about what else they may have on their pipeline that could be relevant for you. This could also be your chance to probe the client on whether there may be any issues with payment.
Also, if the client in question is a fairly new one, you should consider doing some research on them if you haven’t already: are they an infamous late payer or even non payer? A bit of online digging might help you gain some insight into what others are saying about your client and their financial standing.
Reason #2: the client has cash flow issues
27% of business owners felt that late payments were down to a client’s cash flow issues. These issues are caused by clients themselves waiting on an overdue payment. This causes a bottleneck that ultimately affects you and your business.
The solution: assess your working relationship
Unfortunately, if the client can’t pay, this puts you in a difficult situation. You could charge late fees, but this won’t get you the money any quicker or resolve the cash flow issues that this delay may cause you. However, you can assess how – and if – you are able to continue working with this client in future. Perhaps you could ask for full or partial payment upfront for future projects, or amend your contract with them.
Reason #3: the client is disorganised or forgetful
For 26% of respondents, lack of organisation is an obstacle when getting paid. If your client is a small business, perhaps they are drowning in admin or don’t have streamlined processes. This is often the case for new businesses, where there is a lack of time, money, and staff.
The solution: Streamline your chasing process
Set up a workflow for chasing that includes gentle nudges and escalates as the invoice becomes more and more overdue. But always remember that you’re dealing with people and businesses similar to you, so allow flexibility in your processes. Empathy goes a long way, and you’ll probably need their understanding at some point in your business relationship.
Reason #4: the client’s internal communications system is ineffective
Over a fifth (21%) of respondents cited their client’s internal communications as a factor contributing to late payments. Perhaps the person you are sending the invoice to isn’t the right one.
Often, this results in having to chase payments from several people within one company, which can be very frustrating.
The solution: Reach out to your client
“I’ve noticed that the last few payments have come through late. I was wondering if there’s anything I can do to help resolve this?”
While it’s likely that there isn’t much you can do to help, it’s best to be understanding rather than accusatory. Try to get insight into what’s really going on behind the scenes. Maybe you’ll find that they prefer to receive and process invoices on a certain day, or would find it helpful if you could send your invoice in a specific format or with a set email subject.
Is there a more comprehensive solution?
In all likelihood, late payments will be down to a combination of the factors outlined above. I know what you’re thinking: none of the suggested solutions will necessarily resolve the late payment issue instantly or definitively. So how can you put an end to late payments once and for all?
Payment platforms like Juno offer a cheaper, faster, and more secure way to get paid. You simply request a payment from your client, enabling them to pay into your bank account in two clicks.
You can also send automated payment reminders and see all your transactions in one place. Solutions like Juno remove the pain from the payment process and give you more time to focus on what you do best: running your business.