Best Business Practices for Photographers [183]
Statistics show that an invoice more than 60 days old has only a 70-percent chance of being collected in full. After 90 days, the chance of collecting the invoice in full drops to 45 percent, and after 120 days, it falls to 20 percent. It diminishes further beyond that. So, make sure you get paid sooner rather than later.
Late Fees: A Good Idea?
Late fees are quite a challenge to enforce, in my opinion. It's easy when you are a credit card company, the electric company, or you have significant leverage with the client on an ongoing basis to apply late fees. In the end, when a client receives an invoice for $1,300 and then 60 days later gets the same invoice with $40 or so tacked on, I think the likely response will be a negative one, and you will run up against accounting departments who attempt to state that they don't pay late fees or that their policy is to pay in 60 or 90 days and that you're out of luck. If you are in a field of photography in which you can effect late fees and it won't cause a strain on client relations, then perhaps it will work. However, my solution, which I have employed for over a decade, has worked very effectively.
My Solution to Late Fees for Some Clients
There are benefits to offering to take credit cards as a tried-and-true method of being paid on time. This does, in fact, work very well—however, many of our clients just don't want to pay with a credit card. So, I modified a standard concept in accounting—a discount for timely payment.
I remember learning about an accounting term—2/10 net 30—during a course when I was in college. This essentially meant that for a bill that was, say, $1,000, the entire amount was due in 30 days, but for payments received within 10 days, a 2 percent (or $20) discount would be taken off the entire bill. Some firms use 1/10 net 30, and there are numerous variations—2/15 net 30, 3/15 net 40, or any combination thereof.
If you'd like to offer a discount, the US Treasury has an interesting discount calculator, which advises government employees if the discount offered by a vendor is in the government's best interest. The URL is www.fms.treas.gov/prompt.
For example, the government has concluded that they should pay a 2/10 net 30 invoice in the discount period, and, as such, Federal Acquisition Regulations advises them to do so. However, I decided to reverse and modify this concept. For all corporate and commercial clients, as well as a number of editorial clients, I have employed a pre-billed late fee, incorporated into the estimate and initially added to the invoice. And, the discounting of the total due is only allowed when payment is received in 30 days. My contracts stipulate:
Administrative Fee – We are now building into the invoice the cost to repeatedly follow up with accounts payable departments on past-due invoices and float the cost of payment to our vendors, which require 30-day payment. This fee is approximately 10% of this estimate. If payment is made within 30 days, you may deduct this amount.
So, as illustrated in Figure 21.1, suppose the photographer's fees are $450, expenses are delineated as $455, and the administrative fee is $90.50. We advise the clients that they'll be billed for the larger, administrative fee–inclusive figure and further indicate that the administrative fee may be discounted if payment is made within 30 days.
Figure 21.1
I cannot recall the last time a prospective client, when seeing this on the invoice, objected, and we lost the assignment. On the rare occasions that clients have objected, our friendly response is, "No problem—paying on time means that doesn't apply to you." This circumstance has one added benefit—the inevitable calls from nonprofits. Now, I am not going to