I think this is a little silly, and an understanding of why will help you with your business, so here goes:

If the late payment decision comes from the project stakeholder, the person who deliberately engaged you, your contact at the client, then really your relationship is over when they decide to mess with you. Do a standard collections process with them, then terminate the relationship.

If the late payment decision comes from a procurements or payables department, as is often the case, then they don't care about any of the emotional appeals in your letter; in fact, they don't even care about threats of reduced availability or flexibility. People in those departments are compensated for deferring and reducing payments; they aren't measured by how well they maintain the actual customer relationship. Do a standard collections process with them.

You might consider informing your client contact of the dysfunctional payments department, but I haven't seen that produce reliable results (again: the incentives of the procurements or payables people aren't aligned with those of your client contact).

It's important to understand why you aren't getting paid. Here's another fun thing to know: like it or not, sometimes its your fault; if you're working with a company with a formal payments process and you don't follow that process to the 't', you're going to get paid late no matter what you tell them.

Yep - this is excellent advice.

Toyota (a company that generally has its act in order) once paid my consulting bill twice, and then next month paid late. Both times I brought it to their attention and it was rectified immediately. Both times the project stakeholder had no idea, he had just approved them. Left hand doesn't know what the right hand is doing.

Incentives are everything in economics.

Exactly. Happened with me too. Got paid twice. Told the project manager and he said he'll tell the Accounting department. A year later, and still nothing happened.

Indeed.

> if you're working with a company with a formal payments process and you don't follow that process to the 't', you're going to get paid late no matter what you tell them.

There is a class of clients for whom I allow 6 months to be paid, namely where the money comes from an academic funding agency's grant that is administered by a university. Just have a day each month where you make sure that there is progress being made on your slow invoices, and don't be afraid to use the 'phone.

"You might consider informing your client contact of the dysfunctional payments department, but I haven't seen that produce reliable results (again: the incentives of the procurements or payables people aren't aligned with those of your client contact)."

This is good advice. I'm a PM in a large firm that engages vendors/suppliers. If a supplier that was important to the project was having payment issues I'd certainly escalate to a contact in Payments. It might have no effect :-) but I'd have a go.

Another good advice Thomas :)

I have a question. I have a friend which does interest on late payments. Not sure what his interest is like, but say something like 1-2% penalty for late payments. Do you recommend that or think it's a good idea?

We don't do it. We see it all the time in contracts. We still sign the contracts.

Thanks, I think you're taking the right approach here for large business customers. The quoted email is more suited to mom-and-pop idea-wielding people who get work done and never pay.

I currently work in the procurement department of a major defense contractor. This company likes to throw its weight around, but we never (to my knowledge) intend to not pay our vendors - our Terms and Conditions are just exceptionally onerous; but I digress. I would recommend, in any communication with a large customer (such as my company), to be as formulaic and procedural as possible. An example of a letter that would draw our attention and get you the result you want would be:

"Dear [Customer POC],

Your account has a past due balance of $XXXXX.XX. This payment was [agreed/scheduled] to be made by XX/XX/XXXX, in accordance with [our/your] Terms and Conditions. If this balance is not paid before YY/YY/YYYY, we will follow with the appropriate legal action. Please send payment to [address].

Sincerely, [you]"

You want this to look official and direct. Be brief, and don't be afraid to reference legal action even if you don't intend to sue; "appropriate legal action" leaves the next step up to your discretion while still making a material threat to the delinquent customer.

If your customer is a single person, or a very small business, your more emotionally targeted approach will work well. However, with large companies, you need to give them clear-cut rules with consequences outlined if they should break them. Lawsuits are expensive for big companies as well.

That's a pretty good final ultimatum email. There's also the threat of a law suit. That seems to work for professional services types, at least.