10 Proven Strategies to Get Clients to Pay Invoices On Time in 2024

Late payments from clients can wreak havoc on your business‘s cash flow and financial stability. A survey by Freelancer‘s Union found that 71% of freelancers have struggled to collect payment from a client, and on average, freelancers are owed over $10,000 in unpaid invoices at any given time.

For agencies and service-based businesses, even one or two chronically late-paying clients can have a huge impact, making it difficult to pay your own bills and employees on time. That‘s why implementing a solid strategy for getting clients to pay on time is so critical. Here are 10 proven techniques to make sure your invoices get paid promptly in 2024:

1. Watch for red flags and avoid problem clients from the start

While it can be tempting to take on any new client that comes your way, some clients are simply more trouble than they‘re worth. Problem clients cost businesses an average of $7,000 per year in lost productivity and revenue chasing unpaid invoices, according to a survey by Wakefield Research.

Be on the lookout for potential red flags like clients who:

  • Are overly focused on price above all else
  • Seem disorganized or scattered
  • Have an abrasive or combative communication style
  • Have unrealistic expectations about timelines and deliverables
  • Push back on your standard contract terms
  • Have high employee turnover or bad reviews/reputation

These can all be warning signs that the client may also have issues when it comes time to pay their invoice. Consider whether the potential revenue is worth the likely hassle and headache of chasing down late payments later.

If you do choose to take on a client despite some concerns, you may want to require a larger upfront deposit or use a shorter payment schedule to minimize risk. And if a client relationship sours during the course of the project, don‘t be afraid to respectfully terminate the contract if needed rather than sinking more unpaid time into it.

2. Set clear payment expectations in your contract

Never begin work without having a signed contract in place that clearly outlines all of your payment terms and policies. At a minimum, your contract should specify:

  • Your rates and pricing structure
  • Payment schedule (e.g. 50% deposit upfront, 50% upon completion)
  • Accepted payment methods
  • Invoice due dates and terms (e.g. net 30)
  • Late payment penalties and interest charges
  • How any disputes will be handled

Other important clauses to consider including to protect your right to collect payment:

  • Stopping work if payment is not received by X date
  • Retaining ownership of intellectual property until payment in full
  • Recovering legal fees and court costs if nonpayment leads to a lawsuit

Have your contract template drafted or reviewed by a legal professional to ensure it is thorough and legally binding. Then make sure the client has signed the contract and you have a fully executed copy before starting any work.

3. Make it as easy as possible for clients to pay you

The harder you make it for a client to pay your invoice, the more likely they are to procrastinate and pay late. Offering multiple convenient digital payment options can increase the percentage of invoices that are paid on time by 21%, according to a study by Quickbooks.

Some of the most popular payment options to offer your clients include:

  • ACH bank transfer
  • Credit card
  • PayPal
  • Other digital wallets like Apple Pay or Google Pay

Using cloud-based accounting and invoicing software with built-in payment features makes it simple for clients to pay instantly upon opening the invoice. Some of the best tools for small businesses with these integrated payment capabilities include:

Tool Pricing Key Features
Freshbooks Plans start at $15/month Automatic late payment reminders, recurring billing, multi-currency support
Quickbooks Plans start at $25/month Mileage tracking, cash flow forecasting, inventory management
Xero Plans start at $12/month Unlimited users, 700+ app integrations, project tracking
Wave FREE (fees for payments) Unlimited income and expense tracking, customizable invoices

For clients on retainer or long-term contracts, you may also want to set up recurring ACH or credit card payments to fully automate the billing process. Many of these accounting tools have features to securely store client payment details and automatically charge the client‘s card or bank account on a set schedule.

4. Require an upfront deposit before starting work

Asking for a deposit or retainer payment before work begins is a smart way to minimize risk with new clients and ensure your costs are covered. 44% of freelancers say they typically require an upfront deposit for new projects, according to a report by Bonsai.

A partial upfront payment shows the client is serious about the project and protects you in case they ghost or flake out after you‘ve already invested time and resources. It also allows you to test the client‘s payment process and identify any snags that could delay final payment, like:

  • Incorrect billing info on file
  • Lack of proper approvals
  • Technical issues processing payment

What to do if a client pushes back on paying a deposit? That‘s a big red flag that they may not be financially stable enough to pay the remainder of the balance later. If you really want the project, you could propose a smaller deposit to lower their risk. But in general, it‘s best to stick to your guns and insist on the deposit. The average initial deposit required by agencies is between 25-50% of the total project balance.

5. Include all necessary info on your invoices

An incomplete or confusing invoice gives the client an easy excuse to delay payment. Make sure every invoice you send is clear and contains all of these key components:

  • Your business name and contact information
  • Client name and billing contact info
  • Unique invoice number for reference
  • Detailed line items for work completed, with descriptions
  • Date the work was performed
  • Invoice creation date
  • Invoice payment due date
  • Payment instructions (how and where to pay)
  • Accepted payment methods
  • Late payment terms and penalties
  • Additional info like PO number if requested by client

Many invoicing tools have customizable templates you can use to ensure consistency and avoid leaving off any vital details. Here‘s an example of what a clear, professional invoice should look like.

If the client requests any changes or additional fields be added to the invoice, make sure to get those requirements documented upfront and include them on the first invoice you send to avoid delays.

6. Clearly state your late payment policy on invoices

Simply seeing your company‘s late payment policy spelled out in black and white on every invoice can sometimes be enough to motivate clients to prioritize paying you on time. It serves as a friendly reminder that there will be consequences if they don‘t hold up their end of the deal.

A survey by Freelancer‘s Union found that freelancers who included late fees on their invoices were 3X more likely to be paid on time.

So what should your late fee policy look like? While you can customize it based on your business and client relationships, a fairly standard structure is:

  • 1.5 – 2% interest charged per month overdue
  • One-time 5% late fee if payment is more than 14 days late

So an example late payment terms blurb on your invoice might read:

"Late payments are subject to a 5% late fee if not received within 14 days of the due date and will accrue an additional 1.5% interest per month thereafter."

If you have a good relationship with the client, you can always choose to waive the late fee for a first-time offense or if they have a reasonable excuse for the delay. But having the policy in place gives you leverage and sets expectations.

7. Invoice on a frequent, consistent schedule

It‘s easy to let invoicing fall by the wayside when you‘re busy with client work, but letting unpaid invoices stack up can quickly eat a hole in your cash flow. The larger a client‘s overdue balance grows, the more anxious and avoidant they may feel about paying it.

Improve your chances of getting paid on time by setting and sticking to a frequent invoicing schedule, such as:

  • Weekly – for short-term projects or hourly work
  • Bi-weekly – for ongoing work or retainer clients
  • Monthly – for large-scale, long-term projects

Use an invoicing tool with recurring invoice functionality to automate your billing schedule and avoid missing sending an invoice.

For multi-month projects, it‘s best to bill incrementally throughout the engagement rather than sending one big bill at the very end. Break the total project fee into progress payments based on milestones, deliverables, or months. That way if a payment issue arises, you‘re not out the full value of the project.

8. Move clients to a retainer model when possible

If you have clients that give you a fairly predictable volume of work month to month, switching them to a retainer contract can help even out your cash flow and reduce invoicing friction.

With a retainer agreement, the client pays you a fixed fee at the beginning of each month in exchange for an agreed-upon set of deliverables or hours worked. Retainers provide more stability because you know you have $X from Client Y coming in on the first of every month, almost like a paycheck.

This guide breaks down how to calculate a profitable retainer amount based on your time, overhead costs, and contingencies. Make sure your contract also specifies:

  • Retainer period (e.g. 6 months, 12 months)
  • Scope of work included
  • Point of contact and communication methods
  • How overages will be billed
  • How and when the retainer can be terminated

Shifting a few key clients to a retainer model can make a big impact on stabilizing your monthly income and reducing the mental overhead of constantly chasing payments. Harpoon case studies document the impact.

9. Create a standard process for collecting late payments

Having a clear payment collection process ensures you always know what steps to take next when an invoice becomes past due. 61% of small businesses do not have a standard collections process, meaning they are more likely to let overdue invoices fall through the cracks.

Here‘s a sample dunning process you can use for your business:

  1. Email a polite payment reminder 1-2 days before the invoice due date
  2. If not paid, re-send the invoice on the due date
  3. If payment is 7 days late, email a firm but friendly follow-up requesting payment status
  4. If payment is 14 days late, call the client directly to discuss the overdue invoice
  5. If payment is 30+ days late and unresponsive, send a formal demand for payment letter
  6. If no response after demand letter, evaluate sending the invoice to small claims court or collections

Having email templates and call scripts prepared for each step in the process will make it easier to execute and remove some of the awkwardness of asking for late payments.

If a client is uncommunicative or refuses to pay, you may need to decide whether to formally escalate the matter to small claims court or a debt collections agency. Only about 15% of businesses say they would consider legal action for a debt under $1000, as attorney and court fees can quickly exceed the value of the invoice. But for large unpaid invoices, you can‘t afford to let it slide.

10. Know when it‘s time to part ways with a chronically late client

If you have a client who is perpetually paying late despite all your best efforts to set expectations and follow up, you may need to make the tough decision to end the relationship. A repeatedly delinquent client is more trouble than they‘re worth, costing your business time, money, and peace of mind.

Signs it may be time to break up with a late-paying client:

  • Their payments are consistently more than 30 days late
  • They don‘t reply to your calls or emails about overdue invoices
  • They make promises to pay by X date but don‘t follow through
  • They avoid your calls and are hard to get in touch with
  • Their late payments are hurting your ability to pay your own bills

If ending the relationship, notify the client that you will no longer be able to work together until their outstanding balance is paid in full. Stick to your guns even if they push back or make excuses. This template can help you find the right words to fire a client.

Once you free up that mental energy and capacity, focus on finding new clients and projects to replace the lost income. Having a solid pipeline of work will make it less stressful to drop one bad apple.

Implement these strategies for better cash flow in 2024

Getting clients to pay invoices on time is an ongoing challenge for almost every service business owner and freelancer. 57% of B2B payments are made late, according to a report by Atradius, putting pressure on the receiving business‘ cash flow and profitability.

But by setting expectations upfront, making payments convenient, and staying organized with your invoicing and collections, you can greatly reduce your payment headaches and improve your financial stability.

Start implementing a few of these strategies in your own business to cut down on late payments and spend less time chasing down overdue invoices in 2024. Putting in place clear policies and automated processes will lead to more predictable cash flow and let you focus on serving your clients rather than hounding them for payment.