In the previous section, you learned how to set your fees when working for clients. Now, how do you go about get paid, collecting the money for performing the work they hired you to do? Do you accept cash, check, money orders, credit card, or PayPal? Your answer should be all of the above!
If you accept cash payments, be sure to “report it ALL” as income or you might get targeted for an IRS audit. Count on it! Audits and unexplained “missing” income on your return put you at risk for detailed examinations, interests, and penalties.
If you can avoid it, it is better not to accept cash payments. An easy way to keep track of your income is by credit card, check or PayPal.com payments. If someone wants to pay you with cash, definitely accept their money. Cash is KING! However, offer a detailed receipt for services performed, and deposit 100% of that cash in your bank. The bank deposit will count towards your income and will be easily traceable that way. You both will need this information for tax purposes, so, do the right thing and document all cash transactions and deposit 100% of that cash payment. Need money? Make a proper (documented) withdraw via check made out to yourself.
While paying by check might be okay from the customer’s perspective, but the problem is … checks bounce. We don’t want that problem. It happens. As a result, some companies have stopped accepting checks altogether. You might think about this. “Sorry, I don’t accept checks. Only credit card or PayPal payments.”
I’ve been told by some clients that my check (payment) will be cut at the end of the week only to be mailed out on Monday. Working and getting paid two weeks later just isn’t my cup of tea anymore, and it shouldn’t be yours.
Depending on your history with the client, or if you accept checks daily in your business from customers, deposit all checks immediately. If you have a question about a check, you can call the issuing bank. You have the right to ask the teller if there’s is enough money in the account to cover the amount of the check. (Look for the bank, branch location and phone number on the check.) If the teller says, “yes,” deposit the check! If the teller says, “No”, then call the customer immediately to advise them that the bank has confirmed that there isn’t enough money in the account to honor the amount of the check. Ask the customer for a credit card or even cash?”
Should you receive a check over $1,000, walk it into the bank and deposit it in person. DO NOT use the ATM on checks of large amounts, even when you know and trust the client. Banks randomly reject large checks via ATM deposit. You might also go down to the bank where the check is drawn and cash it over the counter. Why not? Be sure you get that cash immediately, rather than wait 2-3 days for the check to clear.
If you anticipate the receipt of a large check by mail, you might ask the customer to overnight the large check so you both have tracking information. It minimizes all the risks of theft, forgery, loss and more. The $17 to $27 fee to send the check overnight is well worth the assurance and timeliness of being able to securely deposit that check into your bank account!
Lastly, make COPIES of all the checks you receive from clients and customers for many reasons. The copy of the check is a record you can maintain and file it manually or scan it for digital filing … should there ever be a question about whether the customer was charged for services, payment, and income when it comes to tax time.
Bank Deposit Payments
Another way to get paid by your clients, is to simply ask them to deposit the check they were going to mail to you. This will require that you provide them with an account number at your bank there is a bank branch near their location. It could be more convenient than driving to the post office and sending the check through the mail. Your client can drop the check off at the bank for deposit.
How does this work? Simply give your client (1) your BANK ACCOUNT NUMBER, (2) tell them the exact name they should make the check payable. Fill out a deposit slip with the information you’ve been given then ask the bank teller the best way to endorse the back of the check. Usually, the teller will advise that you sign the payee’s name and your name below it. Do ask for advice because bank’s have different policies. The customer can either mail the deposit receipt to you or fax it to a number you have provided.
The benefits to you for kindly asking your clients to deposit their check into your bank account (on your behalf) are: convenience, speed, accuracy. This way, there will be no waiting for the check to arrive in the mail or keep checking the mailbox or mail service that you utilize for your mail.
What’s more, with online banking, you can now utilize services that let (your clients) push money to you, whether you bank at their bank or another bank. All they need is your mobile phone number or an eMail address. Check to see if your bank (and your client’s bank) offer this kind of service. It could be another convenient way for clients to pay you.
Credit Card Payments
The fastest way to get paid by your clients these days is by credit card. The best way to accept credit card payments is by having a PayPal.com, Square or Stripe account.
With your own merchant account, you can choose to accept Visa, Master Card, American Express, Discover and other credit cards for payment from your clients and customers. Know that the merchant company will charge a fee to process every credit card transaction. The amount? About 2 to 3% depending on the merchant account provider.
Now, if you are accepting payments via credit card that exceed $1,000, consider asking that client/customer to pay your fee by check. The reason is this. The credit card company processing that order will charge you 2 to 3%, which equals a fee between $20 to $30 for that transaction, alone. Several transactions later could add up to unwanted charges.
So, ask your clients to write a check, or tell them (at your discretion) that you charge a 2 to 3% fee to cover YOUR costs (which the credit card company will automatically charge you). On the other hand, you might offer some friendly advice to your customer on accepting credit card payments for large amounts. In the long run, those fees could at least be tax deductions for you.
Keep your client’s credit card number and billing address information in a secure file in your office or on your computer. If you have your client’s permission to charge them for an item or services at a later date, you already have their information, and don’t have to inconvenience them by asking for it again.
DO keep all credit cards numbers on file forever. If you ever have to access the customer’s account number for any reason, with the customer’s permission, you can verify an account with the last 4-digits of the credit card that was used to open the account. Other companies might be looking to charge the customer’s card about the same time. So, be the first to get paid in the event there is a set limit on the card. These are a few of the realities when dealing with credit card payments from your clients.
Multiple & Recurring Payments
If the proposal you give your client warrants a large sum of money, you might offer your client the option to make partial or multiple payments. It’s a great way to keep the cash flow coming in and takes a little pressure off of the client when he/she can make satisfactory arrangements with you to pay the bill. Just make sure you spell the details out in the invoice so there is no doubt how much is owed and when each payment should be made. You might also assign a late fee when a regular payment is late. Details of such an arrangement might read: “First $500 Payment For Performing XYZ Services : Payment 1 of 5.” Then detail the amounts and the dates due for the next four payments.
If you offer multiple payments, why not use PayPal.com or a shopping cart with a built-in recurring billing feature to setup automatic credit card payments from your clients. You would no longer need to manually charge their credit cards each as payments come due. I had a client once who owed me $4,000 and agreed to make $1,000 payments every two weeks. So, I set up a recurring payment plan within my shopping cart. then, every 14 days, $1,000 was charged to the client’s credit card. It was convenient both for the client and for my business. When the cycle was paid in full, the client’s card was no longer charged. I never had to manage the payment system and the client appreciated the regular and reliable method of payment for services rendered.
This is a great way to get paid by clients. Some clients even prefer to pay via PayPal.com. Simply send n invoice (under the Request Money tab) on the dashboard of your PayPal account and proceed to create an invoice. When completed, send it to the client. The client has a receipt for his/her records and it makes it easy to pay you. Once the money is in your account, you can either transfer it to your bank account (free) or access the money inside your PayPal account through an MasterCard ATM/debit card.
If you and your clients have Cash.app or Venmo, you both can use your cell phones to get paid. Once the client pushes the money they owe you to you, you can deposit those monies straight into your bank account.
Bartering & Negotiating Payments With Clients
Sometimes a client cannot pay you because they’re “cash poor!” There are creative ways to handle a situation like this. First, generate an invoice for your services. Include the total amount due provided you have decided to proceed with the project. Then, create a side total that can be paid via exchange for products or services. You might decide 50/50 exchange; 50% product or services and 50% cash, check or credit card payments. Honestly, I did this with a pizza parlor client whose website I designed. I did the job for half cash and half credit. I received the cash payment we agreed upon and enjoyed many free pizzas over time.
In some cases, where it might be 100% product/service exchange, increase the total due on your invoice to compensate for NOT receiving cash for the project. Next, if you build a credit rapport with a client, use it quickly. Don’t let it slide or take a year to collect on. Time is money and so are their resources. To get the full value of your trade, take action on the trade within a reasonable period of time; no longer than 3 to 6 months.
What else do you need besides money? A new computer? A new car? I’m serious. For example, if you are in the market for computer services such as having your system overhauled and the provider of that services needs a new website, I believe you could make satisfactory arrangements for both parties.
Again, generate an invoice to get the arrangements documented. I had a client take me to a very nice sushi restaurant after I spent six hours consulting with him at his office. It was time well spent. He received the feedback that I could offer his business and I enjoyed a pleasant dinner with my client. This worked out nicely for both of us.
Collect A Deposit Before You Start
NEVER start a project without a down payment. This is the best way to cement a deal. Deposits force clients to get a little “skin in the game” and “commit” to maintaining your services until the job is completed. Depending on the total price of the project you quoted them, you could ask for 50% down, 25% down or whatever you and your client feel comfortable with. If the project is priced at $10,000, the minimum you should ask for is 10% or $1,000 down and weekly payments of $1,000 until the work is done!