Very few people want to work for free. However, some small-business owners and freelancers are doing just that, according to the Independent Economy Council. In an October 2021 survey of self-employed professionals across multiple industries, 72% of respondents had invoices that were not paid for by customers for completed work.
In addition to getting frustrated, not getting paid for your work directly affects your cash flow. Tapping into personal funds, accessing a line of credit, and securing certain types of short-term loans are options on which you may experience a cash crunch. However, these temporary solutions are not ideal and may not always be available. Instead, here are some steps you can take to avoid the problem of non-payment.
1. Sign a Contract
“The number one mistake freelancers make is not working under a signed contract,” says Rafael Espinal, executive director of the Freelancers Union, an organization that supports freelance workers. when they will be paid, how much they will be paid; And if they don’t get paid it will also protect them and they have to go to small claims court.”
2. Ask for Advance Deposit or Retain
Consultants and small businesses may also consider asking for an initial deposit when finalizing their contract. Getting money upfront provides legal proof that both parties have committed to the contract, ensures that you will receive some payment for your work, and can provide you with money for project-related expenses. It may be helpful to let your client know that retainers are a common practice.
3. Request payment at the time of delivery
Ask for payment at the time goods and services are delivered, especially when dealing with a new customer. “Don’t be afraid to collect your money upfront,” says Barry Moltz, a small-business expert and author. He says that “Giving credit to the customer is a privilege, not a right.” After the customer has established a consistent pattern of payment, you can consider whether you want to offer them extended payment terms.
4. Regularly bill customers for on-going services
It is recommended that you bill your customers at least every month while providing ongoing services. “Indeed, a lot of people who actually do consulting services should actually bill their clients every two weeks,” Moltz says. By billing frequently, he says, “you’re not far behind in the work you’re doing and how you’re getting paid for it.” Invoicing software, including some free options, can help you automate the billing process.
5. Accept multiple payment methods
You can make it easy and convenient for your customers to pay for your products and services by accepting multiple types of payments. Common payment options generally include cash, check, credit card, debit card and mobile wallet. Software, especially point-of-sale software, is typically required to accept card and mobile wallet payments from customers.
6. Watch for Warning Signs of Possible Non-payment
There are red flags that may indicate that a client may not pay you for your work. According to Espinal, “one is that they don’t respect your time.” For example, if a customer is constantly emailing you throughout the day, it may indicate a lack of respect for the time you need to work or meet other customers. “Two, in the same vein, if you find that they are poor communicators,” Espinal says, which can include being “unresponsive to your questions or your inquiries.” Finally, “the other is that they question your rates at times,” he says.
7. Take Legal Action
Espinal and Moltz both agree that legal action is an option to consider as a last resort when a client has not paid you. If you have exhausted other options, taking the customer to small claims court may be the only way for you to collect on the outstanding payment. Regardless of whether you are successful in getting paid or not, such an action is likely to eliminate any opportunity to work with the customer again in the future.
In recent years, some states have enacted legislation to protect freelance workers. New York City’s Freelance Is Not Free Act, passed in May 2017, gives freelance workers the right to work under a contract, to receive timely payment, and to be protected from retaliation. A bill has been proposed to extend these rights to the entire state of New York. Similar laws have already been passed in Minneapolis and Seattle. The US Chamber of Commerce, SCORE, the National Business Association and similar organizations that advocate for the rights of business owners and self-employment can be helpful resources.
