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?
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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