Episode: 373 |
Will Bachman:
Collecting Fees:


Will Bachman

Collecting Fees

Show Notes


Lessons learned from collecting payment on over 1,500 invoices:

1. What to include in the contract

2. Questions to ask after the contract is signed

3. What to include on your invoice

4. How to follow up after sending your invoice


One weekly email with bonus materials and summaries of each new episode:

consultant, approved, firm, project, expenses, ch, sending
Will Bachman

Will Bachman 00:02
Recently, a friend of mine who’s an independent consultant called me up to ask for advice on collecting his fee from a client, which at that time was about two weeks past due. I shared with him a set of tips that I’ve picked up over the years on how to increase the odds of getting paid on time. And he thought it was helpful, so I figured I’d collect those tips in this podcast. First, let’s think of the possible reasons for a consultant not getting paid on time by a client. And I can think of three. Number one, a client is just not happy with the work, and doesn’t believe the work satisfied the agreement or maybe doesn’t believe the work was even done at all. Number two, reason, client is okay with the work and does plan to pay the consultant eventually, but is tight on cash at the moment and is intentionally delaying the payment. And Reason number three, your key client is totally fine with the work and is happy to have you paid on time. But somewhere in the whole accounts payable process, something broke down. In this episode, I’m not going to address the first reason of the client just not being happy with the work and refusing to pay that one is a bit harder to solve. Maybe you just find more reasonable clients you can trust. Or you should do better work or get more clarity upfront on exactly what you will do and not do. So I’m not going to try to address that one. This episode is focused mostly on that third reason, which in my experience is the root cause of late payments, probably 90 or 95% of the time, at least when you’re dealing with a corporation. So I’m going to go through some different tips along the way. And let’s start with the contract itself. So in the contract, and again, as I go through this whole discussion, some of these will be obvious, but they were not always obvious to me when I got started as an independent consultant. So talking about the contract, make it clear what the fee is, when it is to be invoiced. And when it is due. If you’re going to be invoicing by milestones, be very clear about exactly what those milestones are and how they’re defined. If you’re invoicing by time and materials, be clear at what periodicity you’re going to invoice potentially, potentially include some kind of penalty or interest. If the invoice is not paid on time, maybe you add one or 2% interest per month. Now a caveat on this one. Number one caveat is that most legal departments in my experience are going to strip out this provision and they just don’t go along with it. Number two is Are you really okay with the client paying you late. So in a sense, if you set a fee for being late, it does open up an option that basically allows it. So let’s say that you agree on a 1% fee per month that accumulates Now, while 12% interest per year is a pretty good return in this market. If you need to pay for rent and groceries today, you might not want you might want the money now and not your money plus 6% in six months. So you may not want to have that kind of monthly fee in place if the client is decides to take advantage of it. Next is you might push to get paid some portion of your fee upfront upon contract execution. Now, your ability to get the client to agree to this will depend a bit on your bargaining power. Some consultants who I know will regularly collect 25% or more of the fee up front that seems to be particularly well suited to a fixed fee project. On a fixed fee project, let’s say for $50,000 you might put in there that you will invoice $10,000 upon signature. on time and materials project it’s a little bit less common. Some people may actually work on a full upfront retainer where you invoice up front and a client works off of retainer. And when that retainer is starting to get down to zero you’d invoice again. Some people do that. More commonly, time and materials projects in my experience are billed with net 30 day terms. But if the client is not willing to pay a big chunk up front, see if you can get at least for the first invoice, see if you can get some nominal payment due upon contract signatures. Perhaps $1,000. If you’re on time and materials, you can say that this will be deducted from your first regular invoice. So if you’re starting work on let’s say April 1, rather than sending your first invoice on April 30 for the month of April, you send an invoice on April 1 For $1,000 upon contract signature, and then on your normal monthly invoice for on April 30, you would deduct that $1,000. The advantage with sending an invoice on day one upon contract signature is that you make sure that the payment pipes are connected, it gives you an opportunity to learn to navigate the clients accounts payable process, make sure that your P o has been generated and make sure that your invoice has all the info the client requires. And just sort of make sure that the whole system is connected and working before you get late on your real payment that you need at the end of the first month. So now let’s say that you’ve got the Oh and one additional thing on that on the contract, it’s if you can get it in there, you might have a statement that says that after sending an invoice, it will be assumed to be approved. If the client does not, you know, push back within, you know, 15 days or something like that, or some time period where if they don’t object to it within a certain time period, then it will be assumed by both sides to be approved. So now let’s say that you get the contract in place. Congratulations, you’re excited to start to work and move forward with the client on the work itself. That’s fantastic. In parallel, asked to get connected with accounts payable, or procurement and ask these questions. So number one, do I need to fill out a vendor setup form, some companies have a specific form that they want you to fill out and send it back to them just to get set up in their system. Number two, do you have a separate form I need to fill out if I want to get paid electronically. Usually that would be a CH or Automated Clearing House. Now, some folks, some firms will have a vendor setup form and they will have this extra form for a CH some clients will be just happy using the bank info right off your invoice. But some companies do want this separate signed piece of paper that you sign and include all your bank info on it. Number three, will you be setting up a purchase order for this project? And do I need to include that purchase order number on my invoice? Some clients want to see that Pio number on your invoice. Number four, how do I submit my invoice? Is there a special email inbox that needs to go to? Who should be copied on the email when we submit the invoice? And even sort of Is there any other any other specific requirements that you have? I have had one client in Europe that actually required the invoice to be format to be formatted in a certain size, even though submitting it as a PDF, I think that they wanted to as what is your one an 810? I think it is. So rather than a letter size, they rejected my letter size PDF, and I had to resubmit it as a European formatted size. Another client, they wanted the name of the invoice the actual file name to be 25 characters or less. So ask about those specific requirements. Ask what the number five, ask what the client requires the invoice to include, and any other special requirements. So often those will be spelled out in the master services agreement doesn’t help to ask number six. Some clients use a payment system for you to submit your invoice via some website, such as transept, or Koopa, or SAP or Reba. So ask upfront if the client uses one of those systems? And if so, what’s the process for getting set up? Now for us consultants, you’ll need to submit your W nine that has your tax ID on it. For consultants in other countries, you probably have some similar form that tells the, your your client how to interact with the tax authorities and how to report the income that they’re sending to you. And just ask who should get that? Number eight. Ask what happens internally After you submit your invoice? Who approves it? And how will you get notified once it’s been approved? Will someone have visibility into some in some system as to what is the expected payment date? And who can tell you what that expected payment date is. Okay, so that’s the questions to ask upfront. Now let’s talk about creating your invoice and what to include. You can create invoices in QuickBooks, or you can create them in a simple XML template and save it as invoice to a PDF. Either way, here are a list of items that you may want to include on your invoice. And again, I know some of this is obvious, but I had to learn some of these the hard way. Number one, the name of your firm. Number two, the physical mailing address of your firm number three, the invoice number And make this a unique number. Once I sent a client two invoices with the same number, because at that time my invoice numbers were always just year, year, month, month day date. So why why mmdd and I had two invoices for the same client that I was making for the same date. So I gave him the same invoice number, and the client didn’t pay one because their system rejected it, and I ended up getting paid about a month late on that second invoice because of a mistake, that was my fault, because we didn’t have a unique invoice numbers, invoice date. Now, this does not necessarily need to be the date that you actually physically created the invoice and mailed it to the client. If you’re invoicing for on a monthly basis, let’s say and you’re sending your invoice for the month of February, and then you get around to doing this on March 5. There’s no law that says you have to put the invoice date is March 5, just go ahead and put February 28 on the invoice or maybe March 1. In some cases, they will start your payment days clock your net 30 terms from the date on the invoice, not the date that it was emailed. So don’t shoot yourself in the foot on that one. Number five, the name of the company you are invoicing sounds gonna obvious number six, the address of the company or invoicing that physical address, sometimes they want to see that. Number seven, the name of the project you’re invoicing the work for. And if it doesn’t have some project name, describe it. Number eight reference the statement of work. either give the Statement of Work number or the name or the serial number or the date of the statement of work, something that references the agreement that you have in place. Number nine, if the client requires you to add their purchase order to your invoice like we talked about before, then add their p o number, which is a number the client generates. So you’re gonna need to get it from that number 10, the name of the key individual executive you’re serving as the internal point of contact. If you’re emailing the invoice, then list all the email addresses that you are sending it to. And that might include your key client, that person’s executive assistant, some accounts payable email address, like AP at client comm having all of these email addresses listed right there on the invoice will help remind you each month of who you need to send it to without having to look at the last email you sent. And if they ever tell you Oh, that person’s left the firm, you should now send it to this person, you don’t have to have some other place to remind you to do it, you just change it on your template for that client. And next month, you’ll get it to the right people. Number 12, your name, your email address and your phone number. Now, this did not occur to me for many years, because after all, I’m emailing the invoice to my client. So I would think that the company has my email address. But I had one case where a payment got delayed. And after I finally was able to talk to the right person and accounts payable, they said that they didn’t have any contact info for me. So they couldn’t ask me a question that they needed answered. I think my my invoice had been printed out and you know, assigned, approved and then, you know, sent off to accounts payable, maybe it was scanned and sent. So somehow they didn’t have my original email. So they couldn’t reach out to me. And I don’t know why they didn’t reach out to my point of contact, but they just sat on it. And they didn’t until I actually figured out and called them up and can answer their questions. So include your contact info, number 13. The actual fee itself. Of course, if you’re doing a fixed fee project, then you should explain what the milestone is. Or if it’s the fee for the whole project and just state what it is. If you’re invoicing in time and materials, then you want to put in a table format with sort of an item section and and sort of an item section that says the consulting services and the name of the person doing the work, which may be you. And then the rate, which is either an hourly or a daily or a weekly or monthly or whatever other frequency is your rate. And then the units the number of hours or days or weeks or months and the subtotal. And if you’re also invoicing for expenses, my recommendation is to include just one line for expenses on the main front page of your invoice, just one line with the amount and then separately include your invoice backup, which should have a cover page that itemizes all your expenses and all the receipts on subsequent pages. And that’s if you have multiple expenses for travel. If you are invoicing, just one or maybe two expenses, then rather having that whole separate document itemized. You could just include the one or two lines on your main main invoice like If they ask you to buy some piece of software, then you could just list that out. Rather than saying expenses and then having a separate attachment number 14 for time and materials, different clients have different demands around this. If you’re invoicing on a daily rate basis, some clients will ask you to just put the total number of days, I work 17 days, 21 days, some will ask you to list out the specific days you worked. So just list out all the dates. I don’t think I’ve ever had a client that wanted to see an explanation of what was accomplished or worked on each day. But in the event that you run into such a client, it would be good to find out that ahead of time. So you can keep notes on all those things and not reconstructed after the fact. With hourly billing, clients will likely want to see a list of all the days that you worked, and the number of hours that you worked each day. A note on this, you should double check that you actually did work all the days that you were saying that you worked, particularly if you’re working just five days a week, every week day, I’ve seen many cases in which smart people have sent me an invoice that indicates they worked on some holiday like Martin Luther King Day Jr. Or Martin Luther King Jr. Day or preds his day or Labor Day. And when I asked Wait a minute, didn’t the client of that day as a holiday? The answer is Oh, yeah, I totally forgot. So that reduces your credibility with a client if you make that kind of mistake. So just be alert on it. Was there any holidays in the month that maybe I didn’t work a Monday or a Friday, and don’t invoice those days. Number 15. To avoid any possible doubt, include the currency on your invoice just as a general practice. And then you won’t forget if you are in a situation where let’s say that you’re a US consultant invoicing a Canadian client in dollars, you don’t want to get paid 100 Canadian dollars if you were expecting 100 US dollars. Number 16. Your banking info. If you are concerned about the security of your banking info, he might find a more secure means of providing your banking info. If so, indicate on your invoice, how the banking info is provided and home. If you’re are not so concerned about it, you may want to just include your banking info right there on your invoice. And that’s the common practice that I see, including everything that someone might need. So the name of your bank, the address of your bank, the phone number of your bank, if your bank has some kind of branch number, include that the name on your account the address of the account holder, whether it is a business or personal account, whether it’s a checking or savings account, the account number and the routing number. And you may include the swift number on there. For some banks, you in the US you have one routing number for an a CH or automated Clearinghouse payment and one routing number for a wire transfer. So indicate if your routing number that you’re providing is good for an AC H or good for wire transfer or good for both, or include both routing numbers if you have different ones. Also, you can say we prefer electronic payment. However, if paying by a physical check, then please make the check payable to and put in the name of your firm or the name of the account. And then include the mailing address that you want them to mail the physical check to. If there’s other banking info that your bank requires, depending on the country you’re in, like an iba n number or other other type of info include that as well, of course, or perhaps a reference number if you’re going through some kind of intermediary back 17. Finally, of course, include the payment terms, whether it’s payable on receipt or net 30 days or whatever payment terms you’ve agreed to in the contract. Okay, so now you have prepared your invoice. If you are emailing your invoice, maybe you send it to three or four email addresses. Ask when you send it out and ask one specific recipient. So identify that person to please confirm receipt, just so that you have some kind of acknowledgement that they actually got it and give it about a week. If you have not received a confirmation by email that it was even just received, then resend it to everyone, train them that you’re going to do this and ask for an email confirming that your invoice has been received. And if you still don’t get a confirmation in another day or so, then start calling you want to work your way to the right person and accounts payable and make sure that the invoice has actually been received. And let’s say that they do confirm receipt. Okay. Now I’ll give it another week. We’re now two weeks from submission. And I’m assuming you’re on net 30 terms. Now you want to ask to confirm ferm the invoice has been approved and asked for a specific payment date. And the method of payment, will check be mailed to me, or will this get paid via a CH? In my experience, if you can get a specific payment date, it’s like 90 or 95% of the time you can rely that that is going to happen. However, having a specific date means that your invoice has been approved, put into some system to automatically get paid on the date indicated according to the payment terms. So it’s likely to happen if you cannot get a specific date and it is a we’re working on it or yet it’s been approved or it’s teed up for payment, but they can’t tell you what date is going to be paid on. That is a good signal to keep working on it. Where is it in the process? You can ask whose approval or waiting on? Do you need anything from me? Maybe you discover it that the client does want you to include the Pio number on your invoice. But that Pio number wasn’t available when you first generated the invoice, or someone else told you it wasn’t required, but you find it is required. And now they want you to resubmit the invoice because it was rejected for some reason or another. So you need to go and do that. Or what has to happen for this to get loaded into your system. You could ask do you send out payments every day? Or is there just one batch per week? And what do we need to make sure that this invoice gets into the batch going out on the 27th. If you are having trouble getting answers to these questions, then at that point, you might reach out to the executive that you’re serving and ask him or her to get involved. Following these tips will generally reduce the chances that you will get paid late, there’s no guarantee. But in my experience, they’ll help. If you are not paid on time, then keep your cool. And remember handlings razor, which is a saying that reads never ascribe to malice, that which is adequately explained by incompetence, the client is probably probably not trying to stiff you just somewhere the system is broken down. So if you aren’t getting results by going back and forth on email, try picking up the phone and work to get in touch with that person and accounts payable. A lot of times things can be resolved. If you just have a conversation with the right person, that person, the person is huffing way at the bottom of the totem pole, the one is actually responsible for issuing payment on your invoice. and treat that person as a partner. Try to avoid expressing the irritation that you undoubtedly feel and problem solve together on what’s the cause and how you can solve it together. And once that person has helped you consider sending a note of thanks to that individual and perhaps a note to that person’s boss at how helpful he or she was, they probably don’t get too many thank you notes and will remember yours. And here is an epilogue, I got an update from the friend I mentioned at the very beginning of this episode. He wrote me yesterday and he wrote the following. I will just letting you know that I took your advice to speak directly with the finance person at my client. I was able to understand their process better. My Local North American Finance contact looked into the situation and found that because of some personnel changes in Switzerland, things sort of fell through the cracks. She also said this was good as it pointed out in consistencies in their own internal processes. So they are working to firm those up. They are looking to fast track payment of my invoices and I’m getting confirmation on a payment date by end of day. Additionally, we agreed on a new process going forward to prevent similar hiccups in the future. So I hope that your experience is just as good as my friends on this. And I would love to hear from you. If you have some additional tips on how to get paid on time that I missed. please do let me know. You can email me Will Bachman at umbrex.com and if you want to get a weekly email from me with a quick summary of all the most recent Unleashed episodes, go to umbrex.com click on the Unleashed tab and pop in your email a name and we’ll get that out to you. Thank you so much for listening

Related Episodes


Automating Tax Accounting for Solopreneurs

Ran Harpaz


Integrating AI into a 100-year-old Media Business

Salah Zalatimo


Author of Second Act, on The Secrets of Late Bloomers

Henry Oliver


Third Party Risk Management and Cyber Security

Craig Callé