“They’ve owed us $150,000 since last year,” an account manager told me one morning over coffee.
He was referring to a major PPC business that had racked up a bill with our marketing agency and ignored our numerous reminders to pay up.
I remember being shocked. How could that happen? Our client could certainly afford our services, so did they just choose not to pay their bills?
Later I’d find out that late payment, deliberate or not, is fairly common in the agency world. Past research has shown that 62% of invoices take 60 days or more to be paid. Unless you’re willing to suffer through a long and expensive legal process to get what you own. Your best bet is to work with your clients to prevent late payment from happening.
Here are 10 ways the best agencies maintain cash flow by getting clients to pay their bills in a timely manner.
1. Maintain great client relationships
You know who will want to pay you on time? A client that feels like more than just a revenue stream.
Maintain a friendly relationship with your customer and every so often. Feature them in your content, go out of your way to solve a problem for them, or offer a one-time bonus service to show them that they’re not just another client.
Never forget that people like feeling special, which is why we’re suckers for “exclusive offers,” and why our brains light up when we’re addressed by name. Consider this fun little study shared by psychologist Robert Cialdini at a talk titled “Words That Matter.”
The experiment took place at a restaurant. In it, a waitress was trained to visit a table under a number of different conditions.
- Condition 1: The waitress came at the end of the meal and said “Thank you very much,” handed the patrons the bill, and let them choose one candy each from a basket. In this condition, tips went up by 3.3% compared to the control group in which no sweets were offered.
- Condition 2: The waitress visited the table at the end of the meal and allowed diners to choose two candies from the basket. Caught off-guard by the waiter’s generosity, patrons tipped 14.1% higher than they did in the control group.
- Condition 3: The waitress visited the table with the basket of candy, and only allowed diners to choose one each when she delivered the bill. Then, she walked away. After a few paces however, she paused, turned around, and returned to the table to allow diners to choose one more sweet each since they had been “such a great table”. Made to feel particularly special, diners in this condition tipped a shocking 21.3% more.
The takeaway here? People are more willing to go out of their way for you if you go out of your way for them first.
As an agency, while you’re technically a business to business company. Remember that the clients you’re working with may be dealing with, hundreds or even thousands of employees.
So make a list of key client contacts and consider sending over a personalized gift at an unexpected time. Even a simple hand-written note to let them know they’re important to you. It’ll pay off when it comes time for them to pay up.
2. Invoice on time
It should go without saying, but if you want your clients to pay on time, you need to invoice them on time. The sooner you get them that bill, the sooner they can pay you.
Not only that, but doing so shows you’re punctual. Any form of late correspondence, whether it’s missing a deadline, sending an overdue email, or delivering a late invoice, shows that urgency and timeliness don’t matter to you.
If you’re not staying on top of deadlines, why should your clients?
Find out at the start of your relationship what your client needs on their invoice to pay you. Some will want more details than others.
Keep a branded template handy that you can substitute information into quickly and easily. Or, if you want to go the paperless route, try this next tip.
3. Use cloud-based services
Today, software helps agencies stay on top of their accounting with some advantages that old method lacks.
Use it to alert yourself during your billing cycle so you don’t forget to invoice for a project. Send automated reminders to your client 10, 5, and 3 days before their payment is due.
When payday finally comes, nearly all cloud-based services will allow clients to pay online. It makes much easier for them to do so, and much more likely you’ll get your money on time.
According to Meredith Wood, former Community Manager at Funding Gates, using business software got their invoices paid almost 3 times faster.
For example, within Intuit’s online platform businesses typically received payment within 10 days of sending the invoice, while all other methods usually take an average of 27 days.If customers are able to instantly access a payment link on an invoice, they can instantly make a payment.
4. Switch to a retainer-based model
If you’re billing by the project or by the hour, consider switching to a retainer-based model, in which a client pays the same amount every month for set services that you offer. This will make the payment process even simpler. How?
If the client knows they’re paying the same amount every month, they won’t necessarily need to look over a bill to make sure everything’s been charged correctly. Instead, they can link their bank account to your agency’s and set up recurring billing once a month so that nothing is ever late.
No more tallying hours or filling out invoices yourself. The more manual processes you eliminate from the billing process, the more efficient it will be.
5. Write the payment terms in the contract, including late fees
Setting up terms from the get-go ensures your client knows what they’re getting into at the start of your relationship. Surprises won’t fly halfway through the job, so a contract that outlines things like your billing schedule and penalties for late payment will set up expectations when it comes time to compensate you for your work.
As far as late fees go, don’t be afraid to enforce them. Remember, a client is not a client if they’re not paying you. Here’s how DoInbound assesses late penalties:
“For a Net 21, on day 22, three percent of the invoice is taken and added to the bill. If by day 42, it is not paid, we take three percent of the latest bill (first bill + three percent) and add it to the bill.”
If you don’t have formal contracts written up for any of your clients and you don’t know where to start, DoInbound suggests checking out Docracy or this free ebook from HubSpot titled “The Anatomy Of A Marketing Contract.”
Because if worst case scenario you have to take legal action, a verbal agreement and a handshake aren’t going to cut it in a court of law.
6. Ask for upfront payments
Clients will be hesitant to pay for your services 100% upfront because they’ll want to see a completed project before they do. But, that doesn’t mean you can’t try to negotiate a down payment on a job.
Consider breaking your project up into checkpoints or milestones. If you’re a copywriting agency hire to write 96 blog posts for a jewelry brand over the next year, ask for payment for every two blog posts completed.
If you’re a content marketing agency that’s been contracted to create a content strategy for a business, ask for half up front and half upon completion. Or if that doesn’t work…
7. Don’t deliver the work until you get payment
Holding your work for ransom isn’t the best route to take if you’re trying to build a fruitful agency-client relationship. But, for clients who fail to pay on time before, this can adopt as a strategy.
Tell the client the work is ready to deliver. Give them a preview to prove it, and then shoot over an invoice. If they really need the work you’ve done, they’ll be sure to pay the bill on time. This way, paying you benefits them.
8. Stick to a payment schedule
If you expect to get your payments regularly, you need to invoice your clients regularly. That means you don’t bill on a 60-day schedule first. Then switch over to a 30-day schedule the next billing period. You maintain the same, consistent calendar.
Cycles of 60, 30, and 21-day billing are common in the agency world, and they take as “Net 60,” “Net 30,” and “Net 21” respectively. But before you start casually dropping those words in client communications, consider that research from Freshbooks shows that using the phrase “Your payment is due in 21 days” is better received and understood by clients than “Net 21, 1.5% interest accrued per month thereafter.”
“Using exact terms such as ‘21 days’ seems to focus the client’s mind around a specific timeframe,” the company shared in a blog post, “and will actually get you paid faster than asking for immediate payment.”
9. Bill more often
Don’t wait for a mountain of debt to build up before you ask your client for payment. A giant bill may be harder for them to make good on, which makes it far less likely you’ll get your money on time.
If you need to bill every two weeks instead of every 21 or 30 days, discuss that with your client, and frame it in a way that emphasizes the benefit to them. “I want to make payments as manageable for you as possible” will get a much better reaction than “I want to get paid on time.”
10. Offer a payment plan
Some clients will dodge your phone calls and refuse to compensate you for your work. While others will honestly want to pay you, but be unable to. For them, an error in budgeting or an unforeseen expense can cause a shortage of funds.
They need to keep the lights on, and compensate their employees before they contribute to your agency’s bankroll. If they’ve been late on one bill and they’re struggling to keep up with payments, consider offering a payment plan.
Add a small percentage of their overdue bill onto subsequent ones. If they’re still having trouble paying, try to work with them using the tip above. Bill more often. Find a schedule that works best for them so they don’t feel like they’re struggling to make ends meet.
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