What's the best way to deal with non-paying or late-paying clients?
I've recently had to deal with clients who pay extremely late or simply avoid paying us entirely. I'd like to try to avoid lawsuits, and I'd also like to maintain as positive a relationship as possible with my clients. What can I do to prevent late payments, and how can I deal with non-paying clients (before I resort to suing them)? What has worked for you, and what do you recommend?
First of all, check the client as responsive client by having a look at their previous records example, buying a car with outstanding finance
and enquiringly the neighborhood. Get some acknowledgement from the clients friends to get amount on time
That is every month's story.
There are many reasons they don't pay on time, like loss of bill, unexpected additional expenses, and the list goes on. Maintaining a relationship with clients and customers with a bad credit history can later become a serious issue for your business.
Here are some practical tips that must be helpful to get paid from your clients on time.
Maintain an accurate accounts receivable aging report.
Communication with clients and call that your payment is pending or late
Send them emails stating the consequences of repetitive payment delays.
Hire a collection agency.
Use a lawyer as a last resort.
Hire a “skip tracer.”
Get acquainted with your clients’ payment procedures.
Hire professionals to manage all accounts receivable accurately so that you get a complete view of the total payment delayed. This will help you plan the budget accordingly, and you are free up to focus on core operations.
Once you have tried for 60-90 days and have been unsuccessful in recovering your payment, forward it to a collection agency.
Do not go for intensive collections ( collection calls service), got for the cheaper flat fee collection letters service and specify your preference as diplomatic.
Diplomatic demands sent in the name a business debt collection agency is the best way to crack those non-paying clients "without destroying relationships". Collection rates are pretty good for the collection demands.
Most businesses overlook collection demands service, fact is that they are usually more effective than most people realize. A series of 5 collection letters cost about $15 per account.
Ask for references and average recovery rate of your industry.
Oh..this is a well asked question.
one way is go their office unannounced and have a word with them directly.
Generally B2B sales and payments are done as its a business policy and now a days everyone is afraid of social media publications
Hey Collette, this is a great question. I recently wrote an article about this topic. But here's a summary. I think overall, communication is key. Make sure everyone has a clear understanding of your expectations as a service provider to them. Making sure your internal processes and procedures are in place will help manage customer expectations. Other options include asking for more money upfront or reviewing contractual obligations can be key components to better collection strategy. You can also get payment guaranty from your customers ahead of time. So, if you're contracting with a business, make the owner personally liable. In many situations, the owner will make sure she gets paid before you do. Imagine that! Another route is to get security in place for the debt. Security interests, which can be real estate or other assets such as equipment, help to ensure that the creditor has the right to seize an agreed-upon selection of a debtor’s assets in order to discharge the debtor. This reduces the risk for lenders and improves incentives for payment. Rules for security interests vary between states, but typically the debtor must offer the creditor security interest in the initial contract. Many of my clients have a collections process in place to help guide them. Typically, that is a few letters from your business over a short period, then a lawyer letter. The lawyer, or collection agency, should be a last resort.
Here's a link to the article if you want to read more. Good luck!
A business I did some consulting work for some years ago had exactly this problem, so after several discussions with their CEO and accountant, I wrote them some new terms and conditions of trading which clearly specified three things:
That all orders and signed delivery notes accepted the company's new terms of trading. All customers were made aware of this prior to the changes coming into force.
That unless agreed otherwise, full payment was due within X days of the date of the invoice being made out, and that if payment was not made within that time, the company reserved the right to add interest to the unpaid amount at a rate of Y percent per month or part month.
That a discount of Z percent would be given on orders which were paid for in full at the time the order was placed.
After a bit of arguing with a couple of their worst paying customers, this solved the problem, but you do need to know how your customers are likely to react before implementing changes like this.
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I would suggest that from now onwards whenever you are in talking terms with a new client, break the contract into milestones. And each milestone should have some specific targets. Make sure the amount for milestones is paid in advance and the work for the next milestone should only be started when the advance payment is made.
Face-to-face; We found the best way if we run into road-blocks with debtors such as voice mail (which we refer to as "voice jail"), always out of the office, constantly in meetings, or some other (not-so) creative stall technique, we sometimes will make an unannounced in-person visit to cut to the chase. No one wants to increase costs by sending it to legal. If the company is broke you're wasting money. As long as they are still in business, we usually pick up a check of some size at a rate of about 65% before leaving. Companies with low DSO often send their sales reps to the debtor. No sale is complete until paid! Face-to-face gives you the opportunity to understand the debtors true intention of paying. Some debtors will even show you their accounting books. If they are broke then try to get them on a payment plan and have them sign it.
Colette - Unfortunately you're not the only one who deals with late paying clients! There are preventative steps you can take to avoid slow/non paying clients.
1. I would make sure that you run business credit searches on both new and existing clients that you sell to. This will help give you an understanding of how your clients are paying their vendors. More often than not, if you see that clients pay slow or don't pay at all, they are going to do the same to you. I would conduct an annual or bi-annual audit of your customers to make sure that their credit reports have not deteriorated, which in turn puts you at risk.
2. New customers should be COD! Unless you have a contract and are selling to a reputable company, then new customers shouldn't be given terms until they show some sort of payment history. This is a beneficial way to test the waters without putting your company at risk.
Now, when it comes to getting existing customers to pay faster, that's always a challenge. It's hard to ever truly know why a client isn't paying on time. One thing I try to do is remember that my client is a human as well. It sounds elementary, but relating to your client can be the breakthrough you need to get paid faster.
Hope this was helpful!
Not all clients pay you on time; similarly, not all are easy to handle. Yes, it is common to have a few clients that don't pay you on time or never make a payment.
The best way to deal with such clients is to report them to business reporting bureau and make the complaint a public record. Since a complaint against them can have a negative impact on their reputation and may limit their credit eligibility in the future, you can expect to get paid immediately.
Prepare invoices as soon as you fulfill your clients' requirements or simply do this at the month-end. Due to having an unorganized invoice system, many business owners often forget how much money they are yet to receive and how much they owe to vendors and other suppliers.
It is also recommended to implement a better system for cash flow management to prevent issues related to late and pending payments. For instance, sending an email reminder for due payments can be helpful to get paid timely.
Be determined to follow-ups. If your clients don't answer your emails regarding payment – call them and do this in fractions of time until they pay you.
You want a response from the client. An unresponsive client is almost always a problematic client when it comes to payments.
Shreya Verma from GST Billing Software
Creating a contract for every job you do can be time-consuming but in the long term, it could save you countless hours of stress, not to mention thousands of pounds. Agreeing with the customer beforehand what is to be done, for when and how much it will cost in a legally binding document is one sure-fire way of ensuring payment and fewer problems on jobs.
You may try a reputable debt collection agency. Some of them only charge upon a successful collection and may act according to your instructions (i.e. being aggressive or not, trying to preserve - or not - the business relationship). A good starting point is http://www.bestcollectionservices.com. This is a DB of the most reputable debt collection agencies.
You can minimize such incidents if you plan carefully beforehand. Here are the best tips I learned from an article on a blog:
-Create accurate and concise invoices
-Offer a range of different payment options
-Try to integrate milestones with projects
-Always try to bill on Mondays
-Automate and schedule follow-ups
-Send messages of gratitude
The best way is to lay out the payment terms from the start. I'm not suggesting that you haven't done this but when you are nervous about alienating a client, it's easy to let them slip. Once you've established the "pain" of why the client needs your services, explain the terms in detail.
Unfortunately, dealing with late or non-paying clients is a common challenge for small business owners. This question is asked in the community so often, that the Business.com team went looking for the definitive answer on how to handle a situation like this. You can see what they advise in this recently published guide on How to Handle Non-Paying Clients.
First, it's best to take precautions before agreeing to work with a new client. Research the client, write up a contract and ask for a portion of the payment upfront. You don't need to be a legal expert to write a simple contract. There are several free templates online that you can download for an exchange of services contract. However, if your business transaction is more complicated than that, I do recommend having a legal consultant review the agreement before asking clients to sign anything.
Despite the best preventative methods, you are still likely to face clients who are not willing to pay for the services rendered. The Business.com guide will advise you on how to approach clients like this in a professional manner.
Know when you have to "fire" a client. I have a current client who's average days to pay invoices runs 63 days. Over 90% of my income from this client was payed after the due date, and mostly because I spent additional time with calls and letters and suspending future work until those invoices were paid.
Cutting ties and terminating an ongoing contract with a habitual late-payer is the best way to get their attention and start the conversation when normal methods seem to fall on deaf ears or are met with excuses. Once the conversation is started, explain why late payments affect your business and your productivity. For my business, 75% of my expenses are payroll. "Dear Client, I have an obligation to pay my employees weekly. When I have to wait for invoices to be paid for 6-8 weeks, I'm still providing my employees a paycheck for the time they've spent on your project. If my expenses for the month are $20,000, and $15,000 of that is payroll, you can understand how your unpaid bill of $2,000 can really strain my business when it doesn't arrive for over 60 days, can't you?"
What I have found is that slow-paying clients are slow, not because they can't make the payment, but because this behavior is tolerated! Just like parenting a child, if they can get away with bad behavior, then they will continue to behave badly. Providing them alternate methods of payment is a bandage. DEMANDING timely payment is the cure!
If we are talking about existing clients, who are late payers (or do not pay), you may stop providing with services til they make the payments.If you have a new client and afraid that he won't pay - conclude an agreement. Taking the work only after payment is being made 100% in advance is a good option, by some clients won't like it.
Which is why I'd recommend devising such a scheme: do your work, but send it coded and do not deliver the source code until the client makes full payment. Anyway, you need to negotiate a contract with every client - it's your protection and guarantee.
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Upfront credit investigation is key relative to assurance of prompt payment . Most smaller businesses are reluctant to stop shipping or withhold services, but we can assure readers that large corporations have strict policies in place around delinquency . In todays environment numerous cash flow solutions around receivable financing can accelerate cash and not lose the client and sales opportunity.