How can I prevent non-paying clients?
I am a Virtual Assistant, specializing in Inbound Marketing and Social Media. All my clients are NOT local. I have a contract new clients sign. But when it comes to payment some go "Missing In Action" and don't respond to email or phone calls when payments are late. When I have 3 clients at once doing this, it severely impacts my income. I stop working for them until payment is made. Is there a better way of ensuring clients pay their bills? They seem to think that since I am a long distance away, they can evade me.
Ask for a retainer at the beginning to cover your costs.
Hi Diane, I am the Community Manager for Business.com. How to prevent non-paying clients is one of the most common questions asked on Business.com. To address your question and other questions like yours in the community, the Business.com team recently published a guide on How to Handle Non-Paying Clients. Occasionally, no matter how many precautions you take, clients will still avoid paying you. This guide outlines how to best approach the situation in a professional way. Hope this helps!
Assuming your clients are businesses (as opposed to private individuals), another option is to work with a non-recourse factoring company (a "factor"). How this works ... a factor does commercial credit check on your customer (customer is not aware of this) and once approved, provides you with an advance against the invoice (usually 75-80%). Your customer then pays the factor in 30-60 days. Factor then forwards you the balance, less their fee (usually in the 3 to 5% range). You only get 95-97% of your invoice, but it is guaranteed, and the majority is paid within 24 hours from the date you invoice.
...I have a clause in my contracts that stipulates until a credit relationship is established with my studio a 50% deposit is required and the balance is COD.
Make sure you get a deposit of 25-33% of their bill before you start work. That way they have something invested and collecting the rest should be easier.
For your situation, I would like to say, that you have too quickly assumed that you have made a sale. Let me explain what I mean with it. When you convince something in some idea, you are "selling". Even if you don't get money, you often need to "sell your idea". When making business on distance and especially Internet based, there is lack of true human communication. People often click and pay without being aware of the actual purchase and business obligation. I am suggesting you to increase the follow-up or checks on each purchases. Further verify where are clients based and if you have a good system for debt collection. Engage yourself well into debt collection either yourself, or through attorneys or debt collection agencies. Charge the simple interest on due payments. That is the Protection part of it. But in the first place, don't allow yourself to sell without true sale. You need to look into the underlying business process for reasons why those clients purchased by action, but not by their mind, awareness and responsibility.
I have often few people signing up contract, without reading it. One part of my process is to expect the client to revert back to me with questions in regards to the contract. If not, I am contacting him back. And if client does not read the contract, the process is canceled and not pushed into signing up. I want my clients to buy truly.
Hi Diane. Depending on the type of rate, either hourly or flat rate you should try and at least collect 50% of the fees up front. Second to that , I would try and make it as easy as possible for clients to pay you, i.e have some sort of PayPal, E-commerce, wire transfer instructions handy , or align your business with a vendor who will manage that part for you like Odesk/Upwork. For clients you don't know at all, I would first try and collect the entire fee in advance until they prove creditworthy and you have a trusting working relationship. In the least it would let you negotiate 50% up front as a retainer. With unknown customers, in the very least have them sign a credit card charge authorization form at the time of purchase with all the recognized payment dates and monthly late interest fees, and have them sign it off. That will give you some confidence they are going to pay. Years ago , I learned a valuable tactic from a firm I was hiring for a decent sized project. I immediately thought they would give me some credit terms etc. What I learned I have carried with us today into difficult new client situations. Once you feel they are at the buying point, without any hesitation, just say this...."I really look forward to working with you, how do you want to pay for it , would you like me to invoice through payPal or credit card?. And stop talking then. Pause. Thats it. It stops people right in their tracks , that you have a valuable service worth paying for and you don't work with unknown clients without payment. It often leads to them paying or further serious payment discussion or terms getting negotiated. I did this tactic last year to a new customer for 8k and got them to pay for the entire 8k on their credit card right there on the phone. Now, they're one of our favourite customers, so trust and creditworthiness have been evidenced, so today I offer them terms. But with people you don't know , ask a lot of questions at the beginning to determine how serious and credible they sound, and then get right into how you work and how you get paid. You can build in guarantees or warranties in your scope of work agreement, stage milestones, proofs of concept and deliverables schedules. The more professional and organized you are in your approach helps immensely. You will be working from a position of strength by getting them to pay a large deposit or full balance in full. Every small business person goes through this, you just need to weigh the risks of signing a new unknown person/client. Never feel you can't walk away or say no from bringing someone new on board. You need to be able to do that with any unknown new customers to protect yourself and your business. Listen carefully to how they respond to your initial payment term suggestions. That may speak volumes. Hope that helps. Jeff
If I don't have a previous relationship with a client, I often ask for a retainer. I then credit that amount to my final invoice. Even if it is a small amount, it shows that the client is serious about my work.
i've been in business for around 25 years and from experience it strikes me that Steve Smith's remark on the client's attitude about perceived value strikes to the heart of things, not so much the debt collection aspect.
What is it that is lacking in the service you are providing? How can you either improve it or add it to existing goods or services? Tailer the service to the client?
Why not run a feedback survey questionnaire by the client or simply call him /her and ask what would improve value?
What I have done and it seems to be very effective is I have a 25% fee for delinquent accounts and send them a new invoice with the additional fee. I have found that when they see that clause it keeps them on track. Or when they see the revised invoice come through I get a reaction to pay and I let them off the hook. It makes me look like a nice guy. I also have a collection agency to go after them if it really gets that bad. Usually when people are not paying me long term the relationship is over,