Getting Paid: Deposits and Payment Terms

The most common small business horror story

Ask small business owners for their worst story and it's usually a customer who took the work and never paid. You'll hear versions of it over and over: a big invoice that went unanswered, a client who went silent, months lost to chasing money that was already earned.

By the time you're at that point, your options are a collections agency or small claims court, and neither is fast or pleasant. The good news is that most of it is preventable before the work ever starts.

Get a deposit up front

The single most effective habit is asking for money before you begin. A deposit does two things: it covers you if the client disappears, and it tells you early whether they're serious.

For most small jobs, a deposit of a quarter to a half of the total is normal and expected. If someone won't put anything down, that's useful information before you've done the work, not after.

Put payment terms in writing

"I'll pay you when it's done" isn't a payment term. Before the work starts, write down and agree on:

• When payment is due. On delivery? Within 15 days? Spell it out.
• How they pay. Card, bank transfer, check.
• What happens if it's late. A late fee, or a pause in work, stated plainly.
• For bigger jobs, progress payments. Break the total into stages so you're never far ahead of what you've been paid for.

This doesn't need a lawyer. A short, clear written agreement or even a detailed invoice that both sides accept is enough for most small businesses.

Set it up so the reminders aren't you

Plenty of late payments are just friction. And a lot of owners hate chasing money so much that they don't. The fix is to set it up once so the chasing happens without you:

• Turn on automatic reminders in whatever you invoice with. QuickBooks, Square, and most invoicing tools can send them for you; it's a setting, usually off by default. A reminder a few days before the due date, then one every week once it's 14 days late, is plenty.
• Send invoices from a billing address, like [email protected], not your personal one. A reminder from "billing" reads as routine. A reminder from you reads as personal, and it's harder for both of you.
• Keep a card on file for repeat customers, with their written okay to charge it when an invoice is due.
• Write the late fee into the agreement before the work starts, so applying it later isn't a surprise or an argument.

Getting paid should never depend on the customer hunting down how to do it, or on you working up the nerve to ask.

If you're already owed money

Stay calm and businesslike. A clear, firm written request that references your agreement carries far more weight than an angry phone call, and it builds a record if you ever need one. Put it in writing, keep it factual, and keep copies of everything.

Before the work starts

The work you do for free by accident is the work you didn't set terms for.

Set the terms every time, before the work starts. It feels awkward once and saves you a nightmare later.