How to avoid bad payers

value pricing Mar 26, 2019

Bad payers are prevalent in small businesses. They are crippling them and many accounting firms as well.

Most people do the work, send out an invoice, then cross their fingers that at some point soon the client will pay. Hopefully within our payment terms. Hopefully within the next 30 days.

That’s a huge problem. Very often they don’t pay in time, or even at all.

We could build in our payment terms into our engagement letters. We could put it on the invoices.

But we know that very often clients ignore those terms and they pay when they feel like it or when they have the cash available.

Click here to watch the full video, or if you prefer, you can carry on reading below.

 

We are giving a service - we should be paid upfront

We are in the service industry. It should not work like that. We should not be acting as a bank and giving credit and lending money.

We should be paid upfront.

That’s how it works in the service industry.

Think about the last time you took your car into the garage to be repaired. The job gets done, they pick up the phone and tell you the car is ready to collect. You go to pick it up but before they give you the keys, you pay the bill.

You go to the dentist and it’s the same thing. You go in for your annual check up and when you’ve finished you book your next appointment and pay the bill.

In some parts of the service industry we pay monthly in advance.

So why does the accounting profession do the work upfront, send the bill and then hope to get paid? It’s crazy.

Here’s how I got clients to pay upfront

Back in 2000, I was running my accounting firm. I was a sole practitioner. I was just learning value pricing. The year before, I’d increased my prices quite significantly. I also knew I should be asking for money upfront. But I was really worried that if I did that, I might lose clients. Curiously, I was more worried about asking for money upfront than putting up the prices.

I’d found out the year before that putting up prices didn’t make a big difference. In 2000 I decided to ask for money upfront.

But, I was still worried about losing clients. So I tested it first. 

For some of my clients, I sent out the renewal letter telling them the price and what I’d do for them. I set out that they would pay me at the end. Before I had submitted the financial statements, submitted the tax return, they would pay me.

For others, I decided to be more brave. I would ask them to pay me in advance, to bring the money in. 

With one particular client I asked for half the money upfront and half after the job was finished. He said something that surprised me so much:

“Why do I have to pay half now and half at the end. It would be much simpler to write the cheque now. Can I pay it all now?”

I was not expecting that. But, what I learned is that with professional services, customers expect to pay the bill upfront.

From then onwards I changed my system. I always ask for money upfront and I have never lost any business because of it. Other than the people that don’t have the money.

But if people don’t have the money, we shouldn’t do the work for them, because those are the customers who are going to be bad at paying in the end anyway.

If you need any more help on getting your clients to pay you, I run a free monthly online session where I teach different value pricing subjects and answer any questions you have. You are welcome to join. Just click here to register and I'll send you an invitation to the next session.

And if you would like to join a community of like-minded accounting professionals learning to price more effectively and confidently, then you can click here to join my Facebook Support Group.

Wishing you every success on your pricing journey.

Mark Wickersham

Chartered Accountant, public speaker and #1 Amazon best seller of “Effective Pricing for Accountants”

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