Card Payments and Cash Flow

THE PROBLEM WHEN CLIENTS PAY YOU BY CARD

THE PROBLEM:

Card payments and cash flow – What is the problem?

Clients who:

• Pay your invoice by credit or debit card
• Make the card payment on the last day that the invoice should be paid
• You don’t get your payment straightaway because the card payment takes a few days to clear

Why is it a problem?

It’s a problem because you get your payment

• later than you expected and often
• after the date that the invoice should be paid (due date) and it messes up your cash flow

So, for example,

• The invoice is due to be paid on the 3^rd of June
• The client pays by card on the 3^rd of June
• The payment clears on the 8^th of June which is when you get your cash

CARD PAYMENTS AND CASH FLOW PROBLEMS – POSSIBLE SOLUTIONS

(1) Make a change to card payments – Stop card payments?

This can seem like a great idea, but have you thought about how it impacts on the client? A client who is used to paying you (and others) by card might not be prepared/or able to change and could decide that it’s better for them not to use your services again.

In a situation where you’ve already allowed the client to pay by card (such as a retainer),  this might

• Damage your relationship because the client is left with no alternatives
• Give the client an excuse to say that you have changed your contract, so they no longer want to work with you

(2) Can you use a different payment provider? 

Which payment provider are you using and is there an alternative?

Some payment providers charge you less for using their service but take longer to pay you. There are others that charge you more but pay you faster. For example, clients could pay by card using PayPal which means you get paid faster (after a few months of PayPal seeing cash coming into the account) but it might cost you more in PayPal fees. You need to examine the options to decide what’s right for you.

(3) Is the payment really late?

If the payment is just a few days late, you could have problems doing something about it.

(a) Do you have terms and conditions of business? If so, what do they say?

Many terms allow the client a few days ‘grace period’ to pay (e.g. 7 days). It means you must wait before you can do something about it (like charge interest or stop work). You must check what your terms say. You might also want to think about changing this but read section (4) below first.

We cover this in all LHG’s business terms. If, for example, you’re using our VA Terms and Conditions, there is no ‘grace period’ provided that you’ve included that in your Proposal/Schedule of Services and/or put a date when the invoice must be paid by on the actual invoice.

(b) What if you don’t have and conditions of business?

If you haven’t got a terms and conditions of business then this could be a cashflow problem. The law says that the payment only will be treated as late if it’s paid 30 days after

• the client gets your invoice or
• you provide your services to them (if that’s later)

If you’re invoicing a public authority, you need to wait 60 days.

(4) Are your terms and conditions of business and invoices clear about payment?

If you accept card payments, what do you tell your client? Do you explain that they must pay x days before the invoice due date to allow it to clear? You must include this in your terms, for example, by adding something like:

“Cleared payment must be received by the Invoice Due date. If you pay by card you must pay  at least 4 days before the invoice due date so that your payment clears in time.”

Again, we cover this in our business terms. If, for example you’re using our VA Terms and Conditions, add this onto clause 2(2)(b).

It would be a good idea to repeat these two sentences on the invoice too!

(5) If payment details are not clear, can you change the terms and conditions?

You can (and should!) change your terms and conditions at any time before you contract with a client (a new client or new work for an existing client) BUT you may have a problem if you try and do this mid-way through your contract with an existing client. It is better to take the initial payment in advance so you are always invoicing in advance of the work being done to help your cash flow.

So, for example, you have a  retainer client who has agreed to a 12 month contract, you can’t just change things in month 6. You can only make a change if your client agrees, or your terms allow you to. Even if your terms allow changes, you will usually have to give the client some notice of the change (e.g. 14 days). Remember that a change could give the client a reason to end the contract.

(6) Do your terms and conditions allow you to take action if a payment hasn’t cleared in time?

Most of the business terms we provide include a clause which allow you to charge interest and/or stop your services. We cover this in our business terms. If, for example, you’re using our VA Terms and Conditions, (see clause 2(4).

If you have a clause like this, you can remind the client that late payment means you could stop work or charge interest. A late payment includes a payment which hasn’t cleared by the invoice due date.

You don’t have to take immediate action. It’s probably better to tell the client that you’re not going to take any action the first time but if it happens again, you will have to do something about it.

(7) Talk to your client

Most people don’t like tackling problems head on, especially when they involve money, but this isn’t something you can avoid.

Have an open conversation with the client and explain your position. If they are not listening or being unreasonable, you could decide to end the contract. First check your terms and conditions for how to do this and for how much notice you need to give them.

You need a good working and professional relationship with your clients. Sometimes a client is not going to be a great fit for your business. This is a big step to take and you do need to think it through. Making that decision to turn your back on a paying client, even a difficult one, can be hard.

(8) Examine your cash flow

If having your money just a few days late is causing cash flow problems, look at alternative solutions:

• Can you arrange to bill your clients at different times in a month? For example, invoice more often or invoice clients at different times of the month?
• If receipt of funds is organised to pay your bills, can you arrange to pay those bills at a later date? For example, you need to be paid on the 2^nd because your insurance goes by Direct Debit on the 2^nd. Can you change your Direct Debit date to the 7^th?
• Can you, for example, get a small bank overdraft to tide you over the few days? Do check the options and what it’s going to cost you first.

Late payment is always a problem for any business but when the client is paying you, albeit a few days late by using their card, you should be able to find a solution between you.

Card payments and cash flow problems? Business is never just about the law. Tell us what you think in our free Facebook Group