How To Avoid Bad Payers

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

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 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 braver. I would ask them to pay me in advance, to bring the money in. 

With one particular client, I asked for half the money up front 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 found this valuable and would like to learn more about value pricing, I run a free live online training session every month with a topic chosen by you. Attend live and you can ask me any questions you have. Click here to register and I will send you an invitation to the next session.

Wishing you every success on your pricing journey

Mark Wickersham

Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller “Effective Pricing for Accountants”