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?
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
I've had this problem with so many of my clients. What worked for me was putting an early payment bonus on the invoice. So for example, if the client pays their invoice within 7 days they pay 5% less - it gives the clients an extra incentive to pay quicker and they nearly always do!
I hope this has helped resolve your issue!
Jack from Office Cleaning Nottingham
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!
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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.
Best way is to adopt no credit policy till a certain amount of business. Then you can extend credit say, Credit will be 10% of the amount party has paid in previous calendar year. For existing customers further credit will be extended in the ratio of reduced credit amount. Initially you may face some problem, but ultimately you will be comfortable.
I see that this question has solicited 99 answers so far and many brilliant thoughts have been already shared. My thoughts;
1. I never recommend confrontation, it takes away lot of energy.
2. Get the clients who pay you late and or avoid paying to recommend you.. Get them to refer you to more clients. Use them to market your offerings. They have an obligation to do that.
Hope this helps, while you keep following up on your bills.
Thank you for making answers for payment relating issues.
I am also a victim of having this kind of problems. At the moment, I'm dealing with a Russian customer and I am trying my best to get him in for establishing a business relationship but he is just replying that he only can do payment on COD. Could anybody help to understand the psychology of the Russian people and how we should convince them for even partial payments? Btw, I have already offered him to only pay half of the payment in advance because we are gonna make their customized products and they are very comfortable with our prices but they still insisting on COD
Please advise! Thank you
I know how frustrating it can be when clients don't pay promptly or don't pay at all. Unfortunately almost every company has debt and how you handle it is up to you. I work for a commercial collection agency we help collect past due accounts for our clients and help our clients maintain the positive relationship with the debtor. We work on a contingent basis so unless we collect you don't pay a penny!! Send me an email and if you or anyone says that they saw this post on mosaicHUB I will offer a discount.
Indeed the answers below are possible. but do not hesitate to contact me for organizing your credit management en recperation.
The first thing i would identify is the reason for Non Payment...Then bucket them as Voluntary and Involuntary.. Voluntary is wanting to default and Involuntary is default due to financial circumstances, service issue, forgetting to pay, bad accountant who just forgets to process the payment etc etc...The Voluntary bucket either needs to be legally handled incase the money is big or just left as Bad Debt incase the value is not significant enough and following up with that may burn more cash than what you end up gaining..
Involuntary Bucket needs to be handled depending on the reason , such as if the client is having Cash flow problems maybe giving leeway may help both sides and you never know tomorrow when he gets a good business he could be your major client.. Incase of forgetfulness ensure timely automated reminder just before payment dates ..Service issues needs to be handled carefully and would recommend you to give the benefit of doubt to customer..