Why it’s time to stop invoicing clients

Why it’s time to stop invoicing clients

You deal with your clients’ financials all day long, busily monitoring their cash flow. As a result, you may overlook sending out your monthly invoice, especially when it’s not automated. Several months pass by before you finally set time aside to bill your clients.

That’s exactly what happened to Sandra. Rather than send a monthly $800 invoice, her client received a $10,000 invoice for a year’s worth of accounting services. The client called her to question the accuracy of the invoice … and to negotiate her rate.

This wasn’t a conversation Sandra wanted to engage in. Lowering the amount would mean she did some of the work for free. It was frustrating.

A domino effect occurred because she lacked an automated invoicing process.

  • Monthly cash flow is affected.
  • She still has her payroll expenses.
  • Reduced monthly revenues prevent her from adding to her team.
  • She is financing her clients’ work with her.
  • Some clients are chronic late payers.
  • Invoicing opens the door to fee negotiation.

Charging her clients after the fact is inefficient and ineffective. Invoicing requires additional time, potentially reducing revenue and definitely increasing frustration.

Negotiation is like playing poker

I explained to Sandra how value is subjective. From her client’s perspective, the value of her work drops once it’s completed. It’s similar to buying a new vehicle. A shiny, new car depreciates by as much as 30 percent once you take ownership and drive it off the car lot.

Most clients won’t negotiate. According to Salesforce, 91 percent of clients who are unhappy will just leave without sharing their concerns with you.

So, who are the negotiators?

  1. Bargain hunters. Price-sensitive clients are always on the lookout for a deal.
  2. Natural traders. It’s the norm for some cultures to negotiate on everything.
  3. Poker players. These clients routinely ask for a reduction. It’s a game of bluff. If you stand by your rates, they will pay your full fee.

Lowering your rate, under any circumstances, signals that your rates are negotiable. Even if you tell them only this once, your actions state otherwise. Don’t say yes when you really mean no.

If you feel compelled to negotiate, then never simply lower the price. Negotiation is a give and take, where both parties reach a mutual agreement. So, what change will you ask for in order to adjust the price?

Train clients to see value

Here’s the downside to working with clients who ask to negotiate your fees:

  • You end up with price-sensitive clients.
  • They’re often highly demanding and don’t fully appreciate you.
  • These clients have greater loyalty to low prices than your accounting services.
  • You think about letting them go, but don’t know how.
  • Low profit clients increase your workload. It prioritizes quantity, rather than quality.
  • Since you’re a hard worker, your work cuts into your personal time.

As I mentioned earlier, your value lowers once the work is complete.

Billing headaches

Sandra initially set up a traditional hourly rate and invoice model. Since she didn’t routinely track her time, she changed to a fixed monthly rate. Her day-to-day workload took priority over monthly invoicing.

Habitually, invoicing was postponed until she needed the cash flow. Then, she worked after hours and weekends to calculate what was owed, create the invoice, and send it out. Her process was cumbersome and time consuming.

Once the invoices were sent, receiving payment was equally clunky.

  • Some clients paid late.
  • Most of her clients still sent paper checks.
  • Clients with cash flow issues asked for exceptions.

This old school billing practice had stopped working a long time ago.

Transition from invoicing to pricing

The conversation with her client about his $10,000 invoice was an eye-opener. She was tired of chasing money. Tolerating the status quo was no longer acceptable.

The shift from invoicing to pricing is a process. Sandra followed these steps:

  1. Chose a platform that allowed her to automate invoicing and ACH payments.
  2. Set up the new payment platform.
  3. Sent a letter to her clients about her new payment policy. The letter highlighted:
    • Client benefits.
    • Security.
    • Explained the transition from billing to pre-payment for services.
    • Gave clients 30 days’ notice about the change.
    • Informed them that next month would include two payments – one from the previous billing cycle and one for the new month.
  4. Plan for clients who contacted her about cash flow concerns.
  5. Clients didn’t receive any services until she received pre-payment.

Since Sandra knew her clients’ cash flow, most clients easily made the next month’s double payment. This got them all caught up with their outstanding bill and pre-payment for the new month.

Only three clients called about the transition to the new pricing model, which was less than Sandra expected. Two of these clients had questions. One client didn’t have enough cash flow for a double payment.

Sandra followed my guidance with this client. We wanted all clients transitioned to the new pricing model at the same time. The client with the cash flow issues would pay the new fees, like everyone else. Sandra then scheduled three monthly payments for that client’s past due invoice.

No more chasing money

You may wonder how Sandra worked things out with the client who wanted to negotiate her $10,000 invoice.

We outlined a solid plan. Sandra realized this client was a poker player. So, instead of caving to his request, she offered him two options:

  1. Pay the $10,000 invoice in full.
  2. Offer a three-pay option that was 20 percent higher than the pay in full amount. Each payment would be $4,000, for a total of $12,000.

As expected, this client chose to pay in full.

Yes, the shift from invoicing to pricing required additional time and effort to get started. Fortunately, the benefits were immediate.

Steady, reliable cash flow gave her the confidence to start looking for a new team member. The guilt about high invoices for several months of services were now behind her. Automating her invoice and payment process freed up precious hours. And, her stress levels lowered because she no longer tolerated an outdated, cumbersome payment process.

Overall, this was a game changer. Since Sandra planned out the transition and clearly communicated this change to her clients, she didn’t lose any clients.

What about you? If you’re tired of chasing money, negotiating fees, and getting paid after the work is completed, then make the switch. Follow these steps to successfully transition from invoicing to pricing.