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As small business owners, one of the quickest triggers for a spike in blood pressure is undoubtedly the issue of late client payments.
Have you ever found yourself dreading the task of sorting out all those late payments? You’re not alone!
However, managing client billing efficiently isn’t just about persistence or learning to stay “on top of it”.
Instead, it’s about making strategic adjustments to your contracts and client billing practices that prioritize your cash flow and reduce financial stress.
The Root of the Payment Delay Problem
Many service-based business owners inadvertently set themselves up for payment delays through their contractual arrangements.
It’s common for contracts to be structured around milestone-based billing.
This means that you bill your clients (and expect to get payment) when certain project stages are achieved, such as after kick-off, after a first draft is presented, or after you are 50% of the way through the project.
The problem is that this system often places control of the payment schedule in the client’s hands rather than yours.
Wait, what?
How often are you waiting on something from the client before you can move forward and meet that milestone?
Whether it’s materials, feedback, or simply their availability, client delays can slow down progress, which slows down when you can manage the billing and receive payments.
Meanwhile, your business’s expenses such as rent, payroll, and credit card payments continue to accrue on a strict schedule.
Ouch!
Shifting to Time-Based Billing
To address this misalignment and enhance the flow of client payments, consider switching to time-based billing.
This model involves setting payments at regular intervals.
For example, 25% at the project’s initiation, followed by additional payments every 30 days until all services are rendered and the project is complete.
This strategy aligns your incoming cash flow more closely with your ongoing expenses, thereby stabilizing your business’s financial health.
How to Implementing the Change
Even though the thought of transitioning to a time-based billing model may sound overwhelming, it doesn’t have to be daunting.
First, start by revising your contracts to incorporate time-based payment terms that feel equitable and transparent to both parties.
If you need assistance, there are tools available that offer sample contract language designed to facilitate this shift and help you manage client payments more effectively.
Let’s Continue the Conversation on Managing Client Billing
We’d love to hear your thoughts and strategies for managing client billing on our latest LinkedIn post.
In our experience, sharing experiences with peers can provide you with new insights and reinforce your own practices.
Let’s continue the conversation there and help each other grow our businesses while maintaining our sanity against the common challenge of late payments.
