How Invoice Partial Payment Can Help You Get Paid Upfront and Collect Overdue Bills
Accepting partial payment of invoices can benefit small businesses, both when the partial payment is requested up front and when it’s used as a tactic to collect on past due invoices. Partial payment refers to a payment made toward an invoice that is less than the total amount due. You can request partial payment before you sign a contract with a new client, or you can offer partial payment in installments to clients struggling to pay their overdue invoices.
Explore these topics to learn how to request invoice partial payments:
How to Request Partial Payment Upfront
Small businesses and freelancers may wish to ask for partial payment upfront before starting work on a project with a new client. Getting a deposit upfront can help with cash flow and give you more peace of mind that you’ll be fully paid for the project when it’s completed. Generally, businesses collect partial payment upfront for fixed cost jobs when they know exactly what they’ll charge when the contract is completed. Here are some tips for requesting partial payment upfront:
Understand the Scope of the Project
First, get a complete understanding of the project scope by talking through the job details with the client. This will help you understand the client’s expectations and come up with an accurate estimate of the amount of work involved in the project, for costing purposes.
Discuss Payment with the Client
Once you grasp the full scope of the project, decide how much you’ll request for the payment deposit. It’s common to request between 25 and 50 percent of the total bill upfront as a deposit. Then discuss all your payment details with the client, including:
- How much you’ll charge for the full project
- The amount you’re requesting up front for partial payment
- The deadline for invoice partial payment
- The deadline for the final payment
- The payment methods your business accepts
Write the Deposit Into Your Contract
Once you’ve decided on the amount you’ll charge for your partial payment and cleared the idea with the client, it’s important to write the deposit details into your contract. Getting the deposit down in writing will ensure you and the client both understand all the payment details of the project. It will also legally protect you if the client fails to pay the final invoice. This guide to contracts can help you create a legally binding contract for your client.
Send an Invoice with Your Contract
When you send the contract to the client for their signature, also include an invoice for your partial payment deposit. The sooner your client receives the invoice for partial payment, the sooner you can secure your deposit and get started on the project.
Begin Work Once You Receive Payment
Once you receive the deposit from the client, you can begin work on the project. When you’ve completed the job, send your final invoice to the client right away, along with your completed work for the project.
Benefits of Upfront Invoice Payments
There are financial and security benefits to collecting partial payment of your invoices upfront. The benefits of partial upfront payments include:
- Improved Cash Flow: Getting partial payment of your invoice upfront boosts your cash flow, so you can cover all your business expenses while working on the project. This is especially important in the case of projects that will take several months to complete.
- Money for Out-of-Pocket Expenses: Most projects come with out-of-pocket costs, such as purchasing software or supplies needed to complete the work. If you request partial payment up front, you’ll have the money needed to cover your out-of-pocket expenses.
- Payment Assurance: While collecting partial payment up front isn’t a guarantee you’ll receive the full payment for the project, it gives you the security of knowing at the very least you’ll receive a portion of what’s owed. Getting a deposit also gives you the peace of mind that the client has enough money to cover part of the bill, which makes it more likely they can cover the full cost when you send the final invoice.
How to Use Partial Payment to Collect Overdue Invoices
When clients fail to pay their bills on time and you learn that they aren’t able to pay the full amount due on the invoice, accepting partial payments over a period of time can help you settle the account for the full amount due. Here are some tips for invoice partial payments on unpaid bills:
Iron out an Installment Plan
Work with the client to establish an installment plan for partial payments toward the overdue invoice. The installment plan breaks down the total cost into smaller, more manageable payments the client makes over a set time period. When you have the details of the installment plan worked out, write them down and have the document signed by you and the client, to make it a legally binding contract.
Next, include specific payment deadlines as part of the installment plan. For example, if your client owes $1,000 and you’ve agreed to a payment plan that includes four payments of $250, establish specific due dates for each of the four installment payments and include the deadlines in your contract.
It’s typical for a small business to charge interest on the overdue payment as part of their installment plan. A common interest fee is to charge 1.5 percent of the total balance due every month. Just make sure the interest you charge doesn’t exceed the limits set by your state’s usury laws.
Send Frequent Reminders
Once your installment plan takes effect, consider sending more frequent invoice reminders than you would under normal invoicing circumstances. Instead of sending reminders only once the installment invoice is past due, you may want to send a reminder when a payment is coming due, since the client has already shown they’re unreliable with timely payments. Send a reminder a week before an installment is due, then the day before the payment is due. Once the payment is past due, follow up frequently by email and phone, but always stay polite and professional in your communications.