Running a business is no small feat. It comes with its share of challenges, and one of the most stressful situations doulas and midwives face is when clients default on their payment plans. It can disrupt your cash flow, create financial stress, and even put you in an emotional tailspin. But don’t worry- I’ve compiled a list of valuable tips to help you avoid payment defaults and protect your business. Like my man Ben Franklin said: “An ounce of prevention is worth a pound of cure.” As such, most of these recommendations are preventative in nature. The point is to prevent defaults from happening in the first place. Let’s dive in!
10 ways to minimize the risk of clients defaulting on their payment plan:
1. Quartz crystal clear terms and conditions
Have very detailed payment terms in your contract. Ensure clients understand the payment schedule, late fees, and consequences of defaulting. Make sure that every touch point (both PRE and POST purchase) you’re crystal clear that payment plans are offered in good faith, and as a courtesy, to help make your offer more accessible, but that they are not optional and cannot be canceled. This can be included as a tick box when purchased, in post-purchase contracts/terms, on orientation calls, and more. The exact language I use on my own website, and in my contract AND in my terms and conditions (listed at checkout, my FAQ and multiple other places!) reads like this: “PLEASE NOTE: If you choose to enroll with a payment plan, you are 100% responsible for honoring your commitment and completing all of your payments. Payment plans are offered as a courtesy and can not be canceled. This is not a “cancel anytime” or a “pay what you want” offer.”
I’ve heard some outright horror stories of doulas and midwives getting screwed out of payments and 99% of the time, there was no contract in place, which means you, as the business owner, are completely and totally shit outta luck. It’s your job to protect yourself; no one else will.
2. Mark-up Pricing
The truth is, no matter what industry you’re in, there will always be a small number of defaults when you offer payment plans, and this should be accounted for in your pricing with a mark up on payment plans. Although controversial, I wholeheartedly stand by a markup for shouldering both the risk of default and the administrative burden of following up on payment plans. For example, when you have a VA spending X amount of time per week following up on missed payments, this is an expense you’ll have to shoulder, because you have to pay your VA for her time. Without a doubt, tt’s more expensive and financially risky for you to offer payments; so be sure to balance this out by charging more.
3. Alternative Payment Options
There are more and more financing options becoming available that allow business owners to reduce the risk associated with offering payment plans, such as Klarna, WizeBank and Afterpay. Paypal financing is also an option but it’s really easy for people to file bullshit chargebacks on Paypal, so I DO NOT recommend it. I personally use and love Afterpay; it allows my customer to make 4 interest free payments, but I still get the whole amount, paid in full, up front. Heck yes! One drawback is that Afterpay charges a hefty 4- 6% fee to use their service, so be sure to mark up your pricing to account for this new overhead expense.
4. Be Careful of “Long” Payment Plans
If a payment plan extends beyond the container of your offer, it will result in a higher number of defaults. For example, I know from trial and error that offering a 3-month coaching program with a 6-month payment plan is going to have way more defaults than a 3-month program offering a 3-month payment plan. Although long payment plans can be great for accessibility, you’ll need to keep an eye on that. Afer people get what they want, they may quit making payments. This is exactly why you want to make sure you’ve collected your full payment BEFORE your client gives birth.
5. Ensure You Follow Up Promptly
It’s important that you kindly, quickly, and firmly follow up on missed payments, especially in circumstances where you have already delivered access to your curriculum IP and hard-cost services. If someone misses a payment, follow up with them immediately, not next week.
6. Prepare Templated Responses for Difficult Situations
Ensure that you have pre-written responses for common difficult situations, and then personalize as needed. It can be difficult to deal with every missed payment circumstance individually, both energetically and from a time management perspective. Also, as much as possible, also try to have someone else (like a VA- Virtual Assistant) deal with these situations, as they can be energetically draining. I love having my VA handle these situations for me, because it can be awkward to send those emails myself and then have a coaching call with that person the same day.
7. Lead With Kindness
Know that most people aren’t intentionally missing payments, and most times it is simply a card error, funds oversight or short-term cash crunch! Lead with kindness, but also ensure that you don’t get walked over. You have delivered a product or service and both you and your client have made a mutual commitment; as long as you have upheld your end it’s fair and okay to require that your client uphold theirs. You DESERVE to be compensated for your IP and hard work, and it’s your right to be paid. All you’re asking for here is a symbiotic energy exchange.
8. Incentivize Pay in Full Payments
Wherever possible, incentivize pay in full payments. The time and energy cost of managing payment plans at scale is an expense for your business and should be minimized wherever possible. Make the pay-in-full option enticing! Make it so that it’s the option most people choose. If they aren’t; why aren’t they?
9. Create payment plans that charge their card automatically
You know how your Netflix, Door Dash and Amazon Prime payments just magically go through every month, without you having to lift a finger? You should set your payment plans up the same way. My coaching program offers a 12 month payment plan. I don’t manually send every one of my clients an invoice every month and then hope they’ll pay it. My software just charges their card. No one on either end has to do anything at all. Your clients will love this option (they’re already stressed and busy and have pregnancy brain) and obviously it’s great for you, too.
10. Emergency Fund
Build an emergency fund to cover operational costs in case of delayed payments. Having a financial cushion can ease the stress during challenging times.
Experiencing A LOT of defaults is a sign that you might need to:
- Adjust your client base.
- More clearly articulate that payment plans aren’t optional
- Be more discerning about who you work with (are you calling in “not good fit” clients??)
- Shorten payment plan lengths to fit the container.
In conclusion, while payment defaults can be daunting, being proactive, communicative, and strategic can significantly reduce the risks. Ultimately, it’s up to you to protect your own ass. By implementing these tips and protecting your business through legal and financial means, you can navigate the challenges with confidence and ensure your long-term success.
How have you handled clients defaults in the past? What systems do you have to prevent them from happening? Drop a comment and let me know; I always love hearing from you!