Dealing with customers that don’t pay
As a small business owner, the desire to get started and take on clients is exciting. However, without a payment policy in place, the excitement of getting a customer is quickly evaporated. You don’t have the time and resources to collect on work you have already performed. If you sell physical products it is well understood that payment is typically expected at the time of shipment or delivery of a product. For service-based business or consulting work, the payment arrangements can be less clear without a payment policy.
Collect payment upfront no exception
Dealing with customers that don’t pay can be difficult. Particularly, new businesses are just starting out, cash-flow is critical to your success even if you are not making a profit yet. The ability to at least meet your expenses as they become due relieves a major burden. Any customer worth having will understand this policy. Business owners can further explain that because you don’t have to spend money and time on accounts receivable or collection activities you are able to offer better pricing. This works even better if you offer a 30-day money back guarantee with the appropriate verbiage to protect against frivolous claims.
Perhaps, you are working on a large project where it is not practical to be paid in full, a deposit equal to at minimum your costs must be required. When possible also collect a portion of your time. If your business charges an hourly rate, charge enough to cover 25% of your time. Business owners will be so much better having these policies in place. As the business grows, you may adapt the payment policy to allow net 15 or 30-day payments.
Customers who don’t pay on time
So what should business owners do when you have already taken on the work and performed the service and/or delivered the product and have not been paid? Be professional, not getting paid when due can be difficult. It will test your ability to remain civil. However, lashing out will only make matters worse. The customer may become even more difficult and refused to pay anything. As a business owner, your first step is to call them on the phone and state that you had expected payment but it had not been received. Established a deadline as to when payment will be received. Immediately after the phone call, send a follow-up e-mail recapping the conversation. Obviously, you should not take on any new work for this client and halt any work in progress. As a small business, you can’t afford to be saddled with a bunch of accounts that you will not collect. If you don’t have a payment policy in place get one right away.
Customers who refuse to Pay
At some point, you may have to consider pursuing legal action or writing the account off as a loss and a lesson learned. The amount you are due and the cost associated with collecting the debt have to be considered. The matter could be further complicated when working with friends, former colleagues or business associates. However, you must not let the relationship cloud your judgment and jeopardize your business. By remaining professional throughout the entire process, you will reduce the negative effects the business matter can have on the personal or family relationship.
I would love to hear your experiences dealing with clients that don’t pay. Please drop us a line in the comment section.
