The Impact of Financial Issues on Client Relationships
A strong and healthy relationship between yourself and your client is super important. It means the client is more likely to trust you and your work, can depend on you and are more likely to work with you on future projects (incredibly helpful to solidifying the long-term success of you and your business).
Sadly, for small business owners and freelancers, late (or even no) payments are an all-too-regular occurrence with a report by the Federation of Small Businesses (FSB) finding that 52 per cent of SMEs experienced late payments in 2022, and 25 per cent reported increased late payments.
We’ve discussed how late payments can impact cash flow as well as hindering the growth and development of you and your business but chasing late payments can also put a strain on a potentially crucial relationship with a client. It's important therefore to handle these professionally and carefully.
In this article, we’ll go through why it’s just so awkward to talk about money sometimes, the challenges of manual invoicing, the cost of late payments to your business and how to improve and avoid these situations.
The Difficult Discussions
Why is it So Awkward to Talk About Money?
When The Notorious B.I.G. wrote his famous lyrics, “Mo Money Mo Problems” we can safely say he wasn’t talking about business. Less money for your business is a very big problem and not addressing payment issues from your client is a problem you need to fix ASAP.
There are heaps of reasons why people feel awkward talking about money with a client. From a fear of damaging (or even losing) the client relationship by making them feel pressured to a fear of seeming more concerned about the money than the quality of your work to a general lack of confidence in how to handle financial discussions. Any new small business owners or freelancers might feel as though all the power is in the client’s hands and feel vulnerable when discussing money.
We’re here to tell you that you can put those fears and vulnerabilities aside, get the money you’re owed AND keep your client happy.
The Cost of Late Payments
Late payments have a huge impact on both the individuals and small businesses experiencing them, but also the wider UK economy. According to the FSB, small and medium-sized businesses make up 99.9 per cent of all businesses in the UK and make a huge contribution to the UK economy.
“On average in 2022 at least half (52%) of small businesses had experienced late payments in the previous three months, with a quarter (25%) stating that instances of late payment increased.”
- FSB, Time Is Money
According to the Atradius Payment Practices Barometer Global Report, 2023 – 21% of invoices sent by small businesses are paid late, resulting in significant disruptions in cash flow management. The outcome? Small businesses that experienced an increase in late payment (specifically during 2022) were more likely to apply for credit (17% compared to 9% of those that did not experience late payment) *FSB, Time Is Money
Smaller businesses and freelancers simply don’t have same kind of cash reserves as their larger, corporate counterparts. A delayed invoice can be the difference between paying or not paying your suppliers or employees or even on a personal level – your rent or mortgage. This is having huge repercussions across the economy and don’t get us started on the impact on people’s mental health.
Maintaining Professionalism Chasing Payments
Picture the scene; you’re a small business owner and have managed to land a huge and well-known client. You’re producing quality work for them and sticking to your timeframe. Life is good.
You’ve sent your invoice and it’s just gone overdue. You email your client but hear nothing from them.
A few days go by, still no word from them.
A few more days go by, your client has gone silent on you. You don’t know whether to stop your work or not... you’ve got deliverables to stick to and don’t want to not do a good job just because of a potential miscommunication!
It’s been a few weeks and still no word, you’re now late in paying a supplier and your rent is due to go out. You’re getting seriously stressed and send a ‘slightly less than professional’ email to your client and stop work until the invoice has been paid.
The client eventually pays but the relationship has been damaged with a lack of trust and respect on both sides.
This is a tale as old as time (or at least as old as contract work and invoicing has been around) and sadly far too common. Here’s how to avoid this scenario:
1. Send a Friendly Reminder
There can be heaps of reasons why a client might not have been able to pay exactly on time. People are human (yes even your clients) and make mistakes. Give them the benefit of the doubt but ensure a polite reminder is sent as soon as the invoice is overdue.
How Payment Bear Can Help
Payment Bear can alleviate the time spent on this by automating the process, sending out customised, polite reminders as soon as the payment is late, reducing the time (and stress of remembering to follow up manually.
2. Be Clear and Professional
When it comes to money (or a lack of it) emotions can run high. Make sure to keep a professional tone with your client and focus on the facts rather than any personal grievances. Ensure you’ve clearly stated the amount of money due and any terms and conditions that were initially agreed on.
How Payment Bear Can Help
Payment Bear’s invoicing system enables you to create beautiful and professional-looking invoices that clearly outline payment terms, ensuring there are no potential misunderstandings further down the line.
3. Offer Flexible Payment Options
Clients can have cash-flow issues too! If a client is having trouble paying (and only if you have the means to), why not offer them the option to pay via instalments such as a payment plan or partial payments? This will help them with their own cash-flow problems, ensure you have at least some cash coming in and show your eagerness to work with them, improving your relationship. A win-win for everyone!
How Payment Bear Can Help
With Payment Bear, users can set up flexible payment plans directly through the platform, making it easier for clients to pay in installments and even easier for both parties to keep track of how much is outstanding.
4. Use Automated Reminders
Why not remove yourself from chasing invoices altogether? You could set up automated reminders than escalate in tone if the invoice remains unpaid – leaving you to focus on your wonderful relationship with the client based on your work, instead of constantly chasing for money!
How Payment Bear Can Help
Payment Bear’s automated reminder tools lets you set reminders that escalate from friendly ‘nudges’ to more urgent requests, all whilst maintaing a professional tone and acting as a kind of ‘third party’ in this relationship.
5. Schedule a Call
Sometimes there’s only so many emails or notifications that can be sent before it’s time to ‘hash it out’ on a call. Calls can be a quicker way to clarify issues and stress the importance of timely payments.
How Payment Bear Can Help
Whilst Payment Bear doesn’t schedule calls, our clear and easy to use invoicing system can help you quickly prepare for the call by having all relevant payment information and comms in one place for you to refer to.
6. Document All Communications
If you’ve agreed something on a call, make sure to send a follow up message in writing and keep a record of all communications with the client regarding the overdue payment. Sadly necessary, but it’ll help protect you if the situation were to escalate and – equally – shows a great deal of professionalism.
How Payment Bear Helps:
Payment Bear automatically records all invoice-related communications and actions, ensuring you have a comprehensive audit trail if needed (but hopefully it shouldn’t come to this!)
7. Set Clear Expectations for Future Payments
Once the payment has (eventually been made, politely and professionally re-stress the importance of timely payments for future invoices to avoid another situation like this.
How Payment Bear Helps:
Payment Bear’s features such as recurring invoices and automated reminders can be set up to ensure that any future payments are made on time without needing any time spent by yourself following up. It’s automatically applied late fees also saves any potential awkward conversations between yourself and your client (thank us later).
Takeaway
Late payments have a huge effect on both the economy, businesses and individuals' mental health and if left to escalate, can result in a damaged (if not terminated) client relationship.
It’s therefore super important to make sure you’re managing your invoicing process properly and efficiently. There are ways of course to handle these tough situations manually, from polite email reminders to calls to offering flexible payment solutions. Implementing an automated invoicing system like Payment Bear’s (shameless plug) can be a great way to save time, maintain professionalism and protect the relationship with your client, leaving the awkward financial admin to the platform.
