When Clients Take a Long Time To Pay

If you’re a business owner or independent contractor, you’ve probably dealt with clients who fail to remunerate you in a timely manner. It can be awkward.

Of course, you’d like your late-paying client to expedite the payment you’ve earned. On the other hand, you don’t want to alienate someone who might otherwise have been inclined to retain your services again in the future, and perhaps tell h/er friends and associates how exemplary your work was.

How can you encourage clients to make timelier payments without sounding overly pushy, souring a professional relationship, and potentially undermining your reputation?

Agree in advance on a payments system that is convenient for the client.

You’ll probably find that different clients have their own preferences with respect to payment methods. Some may favour writing cheques, others may be more comfortable with PayPal, bank transfers, credit card, or even in-person cash transactions.

Set up accounts with multiple secure payment processing services and through your bank. If the client can choose among several payment options, s/he is likely to find one that is convenient for h/er.

Expect to receive payments late, and plan ahead.

As a general rule, you shouldn’t depend on timely payments from invoiced clients. Instead, try to keep a fairly robust cash reserve on hand to cover your own short- and medium-term expenses.

Although you want to encourage all clients to pay on time, realistically you’ll almost certainly encounter laggards here and there. One way to compensate for this is to request payment on a date well in advance of the time when you actually need the money—if possible, leave a margin of at least ten days.

Remember: you’re unlikely to suffer significantly negative consequences from being paid earlier than you expected.

Be clear and specific about when you expect to be compensated.

“Payment on this invoice is due within 20 days” as opposed to “Payment due upon receipt.” (In the latter case, your client could invoke the phony excuse that s/he received your invoice late.)

The clearer and more comprehensible the instructions, the less of an excuse the client has for failing to follow them.

Consider an early-bird discount.

No one enjoys wasting money, and by offering your client a slight discount for early payment, you introduce a direct economic incentive in favour of timelier compensation. Even a discount of one or two percent can provide your client sufficient impetus to get the ball rolling sooner.

Alternatively, you could institute a penalty of one or two percent for late payment.

Send cordial reminders.

If a week or more has passed since the deadline you originally established for payment, it’s reasonable to send the lagging client a gentle reminder, indicating that you would appreciate being compensated for your work as soon as reasonably possible.

Withholding of services is a drastic, but sometimes necessary, step.

You won’t need to resort to withholding services in the vast majority of cases. However, you may encounter a handful of situations in your career where there is simply no reasonable alternative. Your client has failed to pay up despite numerous polite reminders, and you need to draw a line in the sand. 

Your skills have value in the marketplace, you can’t afford to work for free, and you don’t want to garner a reputation for being overly lax on clients who refuse to keep their end of the bargain.

Why many tech startups are cheering a broken Liberal campaign promise

On March 22, Prime Minister Trudeau’s Liberal government unveiled its first federal budget since capturing a parliamentary majority in the 2015 election. Among the components of the budget that have attracted attention in the press are the fiscal stimulus measures, infrastructure investments, and a deficit projection of close to $30 billion. But the budget is also notable because of something it does not contain: changes to the taxation of stock options.

In general, Canadians who are likelier to receive compensation in the form of stock options tend to be at the high end of the earnings scale. Large firms often reward their executives with stock options in lieu of salary, partly because stock option gains benefit from preferential tax treatment, and partly because ownership of claims on their own company’s stock provides a material incentive for corporate executives to optimize that stock’s performance.

The Liberals’ original proposal was to place a cap of $100,000 per year on gains from exercised stock options that can qualify for a tax deduction. (Under the current rules, only half of gains from cashing in stock options are subject to taxation, and there is no cap.)

Why didn’t the government follow through on its pledge? And what are some of the implications of this non-change?

Startup compensation a concern

“As I was out on pre-budget consultations I heard from many small firms and innovators that they use stock options as a legitimate form of compensation for their employees, so we decided not to put that in the budget,” said Finance Minister Bill Morneau. Indeed, startups typically do not enjoy the kind of cash flow that large, profitable, established firms generate. Thus, it is common for startups, particularly in the tech sector, to try to lure talent away from major players by offering stock options as compensation. This practice has allowed some startups to attract highly skilled personnel who might otherwise have accepted a more immediately lucrative position at a reputable, old-guard company.

The Liberals were not the only federal political party to float a proposal for altering the preferential tax treatment accorded stock options in the run-up to last year’s election. Thomas Mulcair’s New Democrats actually went a step further, advocating wholesale elimination of the special deduction. But tech entrepreneurs pushed back; Hootsuite Media founder Ryan Holmes even predicted that the NDP plan would “kill the Canadian startup ecosystem.”

At a time when Canada’s economy is experiencing lacklustre growth and job creation, many leading politicians understandably don’t want to be seen as undermining one of the country’s most vibrant growth industries. Moreover, the Liberals have marketed themselves as a party that plans to green the economy through technology and innovation; a policy change to the detriment of the tech startup sector would seem out of step with that brand image.

The downside: loss of federal revenue

Of course, incumbents in many industries would be delighted to receive special subsidies, protections, and preferential tax treatment, and can mount convincing arguments in their own favour. Every policy yields costs and benefits, and it’s the task of policymakers to weigh these in order to identify the most socially beneficial option.

Preferential treatment for stock options imposes a cost on Canadian taxpayers by undercutting the amount of revenue that makes its way into federal coffers. In turn, this compromises the government’s ability to offer public services and invest in infrastructural upgrades and innovation—all of which can lower the cost of doing business and boost productivity—without increasing the deficit. Even relatively conservative tax specialists, like Jack Mintz of the University of Calgary, have argued that the status quo around stock option taxation is inefficient, and unfairly favours employees who receive stock options as compensation.

Trudeau and Morneau broke their promise because they have calculated that the status quo delivers more benefits for startups than costs for Canadians who don’t hold stock options. For now at least, a lot of tech startups will breathe a sigh of relief.

Optimize the Employee Performance Review

In today’s technology-intensive business climate, employers must be able to accurately gauge the evolving needs of their enterprise, how individual employees are coping with change, and how each staff member’s role is shifting relative to h/er original job description. The individual employee performance review can be an effective tool for measuring progress, and for improving productivity, morale, and relations between managers and staff. But it can also be a waste of time if the participants are unprepared.

Prepare for the performance evaluation in advance and pay attention to details. Here are some areas you may want to consider:

•  the employee’s professional rapport with h/er co-workers, superiors, and subordinates

•  skills and execution in key areas like organization, timely response to e-mails and phone messages, courtesy toward clients (barring exceptional circumstances), and completion of tasks ahead of deadlines or key dates

•  any comments or feedback, whether complimentary or otherwise, about the employee from h/er colleagues or immediate supervisors

•  opportunities for professional growth, on-the-job training, and skills upgrades

It is wise to give an employee plenty of notice that a performance review is forthcoming, and remind h/er a few days before the meeting. This will give h/er time to identify issues that s/he may want to raise, including h/er goals within the organization, and areas where s/he may need additional support.

Hold the evaluation in a confidential space, and set an agenda.

 

Dedicate a certain number of minutes to each area you’d like to discuss; aim to stay more or less on topic and on schedule. Confidentiality is important. You don’t want everyone in the office to know your opinion of the employee, and the employee won’t want rumours about h/er strengths, weaknesses, impressions of relationships with colleagues and professional goals to spread.

Don’t leave compensation to the end.

Employees are understandably interested to know the level of compensation they can expect today and in the future. If the individual you’re evaluating senses that you’re glossing over the subject or avoiding it, it could become an elephant in the room. And distractions of that magnitude during an evaluation are never helpful.

Whether you believe a raise is in order or not, state your position and your rationale. If possible, try to put a positive spin on a non-raise by hinting at actions your employee can take to qualify for a salary bump and increased responsibility. Staff who feel that their pay is arbitrary, or that their career is stuck in neutral, may become discouraged and contemplate moving on.

Ask questions, and provide opportunities for your counterpart to do the same.

You may have formed a certain impression of the employee and h/er performance already, but it’s still important to hear the other person’s point of view. You could even begin the meeting by asking the employee to evaluate h/er own performance, and compare that assessment to your own.

In the event of an underperformance, there may be confounding factors you haven’t accounted for. On the other hand, if an employee is enjoying success, s/he may offer an explanation that will enable you to foster h/er continued success.

Finally, just as you would at the end of a job interview, reserve a few minutes for the employee to ask questions, raise concerns, and pitch ideas of h/er own.

Make sure you’re on the same page.

Review the key points raised during the evaluation as it draws to a close, and ensure that you both (employee and manager) understand and accept your expectations of each other, and your responsibilities moving forward.