Being a small IT business owner has its perks: you are your own boss, you can set your own hours, and you get to pick which brand of coffee to stock in the office. On the downside, the thankless task of following up on past-due invoices probably falls on you, too.
How do you get clients to pay promptly so you can spend more time shopping for that perfect artisanal coffee blend and less time chasing them for money? According to the experts we talked to, you should accept online payments, offer discounts for speedy bill settlers, get paid upfront, and charge late fees.
1. Accept Payments Online
One way to get clients to pony up cash faster is by giving them the ability to pay their bills online.
“We’ve actually noticed that small-business owners who accept credit card payments get paid, on average, 11 days faster than those who don’t,” says
George Kyriakis (@geokyr),
director of business development for
(@freshbooks), a cloud-based accounting software company.
Many accounting programs like FreshBooks offer the ability to set up automatic payments, further streamlining the process, says Kyriakis. “Taking advantage of features like recurring invoicing also means that you can set up an invoice once and set it to send to your client on an automated schedule.”
The takeaway: The easier you make it for clients to pay you, the more likely you are to get paid on time.
2. Offer Discounts for Early or On-Time Payments
Almost all of us are guilty of at least one purchase we can chalk up to an irresistible sale. Small IT business owners can tap into FOMO (fear of missing out) on a deal by offering a small discount to clients who pay up on time.
“People are very sensitive to deals like these, not so much because they like the idea of saving money, but more because they hate the idea of losing out on a discount,” says
associate professor of marketing at
New York University's Stern School of Business
(@NYUStern), with an affiliated appointment in the New York University Psychology Department (@NYUPsych). “It’s this negative framing – the idea that they might lose out – that’s most likely to encourage them to pay on time or early.”
Jenny Olson (@JennyGin18),
assistant professor of marketing at the
University of Kansas School of Business
(@KUbschool), notes you might get locked into this strategy.
“If a small IT business owner chooses to use discounts, he or she must be willing to make it a long-term strategy,” says Olson.
Not everyone finds that discounts work for their business.
Josh Norris (@joshnorrisjxn),
CPA, CFP®, and managing member at
says that his expectation with all clients is that they will pay on time, but he may give a client a break on their bill as a courtesy.
“I only offer discounts after the fact to my best clients who bring me a lot of business,” he says. “If they are expecting to pay $1,000 when the job is complete, I may send them an invoice for just $900.”
The takeaway: Discounts can work for some clients, but be careful. If you take that incentive away, clients may revert back to old habits.
3. Ask for Payment in Advance
If you have clients that chronically pay late, insist they pay upfront. That way you don’t start work on a project until you’ve been paid.
“When I receive extremely late payments, I notify the client that the next project will have to be paid in full in advance before I begin work,” says Norris. “If they leave, they were not a client worth my time anyway.”
Norris adds that if you are just starting out this can be a little trickier to enforce. “But if you work for free enough times from non-payment, you will see the value and importance of it,” he says.
Another way to approach the upfront payment is to not require it, but offer a discount for a client willing to pay for your services in advance.
The takeaway: By asking for payment in advance from chronically late bill payers, you may avoid inadvertently working for free.
4. Charge for Late Payments
If all else fails, consider charging either a percentage of the invoice or a flat fee once the invoice becomes overdue.
“This often encourages your clients to make sure they pay your invoice before the other bills they may have,” says Kyriakis. “Make sure you set the expectation upfront that you charge a late-payment fee though – it’s not fair to spring that on a client by surprise.”
Be cautious with this approach, though. Many people respond better to carrots than sticks, say Olson and Alter.
“While some people respond better to the carrot, others need the stick,” says Olson. “If you choose to use the stick (late fees), it should be a reasonable amount that encourages clients to pay, but not so much that you start losing clients.”
“People are more sensitive to sticks, but they may respond more reliably to carrots,” says Alter. “If I were advising a company, I’d want to test both approaches – but my instinct is that early discounts would work better in the long run than late penalties.”
The takeaway: Late fees can motivate some customers, but turn off others. Evaluate your customer base to decide whether discounts or fees might best motivate your clients to pay on time.
The Big Picture
You know your clients best, so choose the payment plan that will work best for your business. And remember, sometimes a little nudge is all people need to pay a bill.
“There’s nothing wrong with sending your clients a gentle reminder if their invoice is nearing its due date,” says Kyriakis, who also noted that a little kindness also can go a long way. “We looked at the invoices in FreshBooks and saw that people who were more polite in their payment terms – thanking clients for their business or using ‘please’ – had five percent more of their invoices paid.”
If you're looking for more financial tips for running your business, be sure to check out "5 Bookkeeping Mistakes to Avoid in Your Small IT Businesses" and "Setting Prices for a Profitable IT Business."
About the Contributors
Adam Alter is an associate professor of marketing at New York University’s Stern School of Business with an affiliated appointment in the New York University Psychology Department. He's also the author of the New York Times Best Seller Drunk Tank Pink: And Other Unexpected Forces That Shape How We Think, Feel, and Behave, which examines how features of the world shape our thoughts and feelings. He has written for the New York Times, New Yorker, Atlantic, WIRED, Slate, Huffington Post, and Popular Science, among other publications.
George Kyriakis is the director of business development for FreshBooks, cloud accounting software designed exclusively for service-based small-business owners. His specialty is in channel, sales, and marketing leadership, and during the course of his career, he has spent nearly 25 years developing channels, global alliances, and working with partners from all over the world.
Josh Norris, CPA, CFP®, is a managing member of LeFleur Financial, a tax practice and investment advisory firm in Jackson, Mississippi. After graduating from the University of Mississippi, where he received a degree in both accounting and international studies, he began his career with Ernst & Young in Memphis. He later moved back to his hometown where he opened his CPA firm, Corkern & Norris. In 2015, he created LeFleur Financial, a fee-only investment advisory firm, which allows him to provide more extensive financial services to his clients.
Jenny Olson is an assistant professor of marketing at the University of Kansas School of Business. Her primary interest is in the area of consumer behavior with an emphasis on interpersonal contexts. Specifically, Olson’s research examines the interplay between financial decision making and relationship formation and quality. She is also interested in moral psychology and, in particular, the inferences we draw from others’ consumption choices.