Customers are the beating heart of your business, keeping it ticking over and providing you with an income. But what can you do if they refuse to pay up?
Non-paying customers are a massive headache for small businesses. Not only do they leave you out of pocket, but they also damage cash flow, forcing some companies to borrow at high rates of interest. So what can businesses do to help prevent not being paid?
Set Clear Policies And Payment Dates
For some companies, the payment structure will be obvious. Once the job is complete, the customer has two weeks (or however long you stipulate) to pay for services rendered. After that, you can start sending them reminder letters.
Many companies, however, get into trouble when the structure of the payment is more complicated than that. For instance, some payments might only be made once a particular section of a project is complete. In these cases, a clear payment timetable should be set out, as well as conditions on which the payments should be made.
Be Clear On Debt Recovery
If you’re owed money, but a customer won’t pay, you’re legally entitled to recover debts from them. To prevent having to take any action in the first place, it’s worth including the fact that you’ll pursue all debts in the small print on your invoices. Even if you do not intend to carry out legal action to recover debt, just incorporating the threat can be an effective way to make people pay up. Of course, whether you need to be explicit about taking legal action to recover a debt depends on the type of industry in which you operate. A golf club, for instance, probably doesn’t need to threaten its customers on the front of every invoice, since they’re very likely to pay. A loan company, on the other hand, may have to. Legal expenses insurance by firms like Kingsbridge Contractor Insurance can be used to cover the cost of recovering debts. Legal fees can sometimes run into the tens of thousands of dollars when paid out of pocket.
Send Invoices Over Many Different Channels
People will come up with all sorts of excuses not to pay you. And so it’s a good idea to remove as many of those excuses as possible. A common excuse used all the time by customers is not receiving an invoice. To reduce grounds for this excuse, send invoices through multiple channels, including by post and by email.
Another favorite excuse is that it is “hard to pay.” To get around this one, send invoices via email with card payment options attached, enabling customers to pay there and then.
Consider Graduated Payments
In some situations, waiting until the end of a job to get paid is risky. A job might last six months and not getting paid at the end of it could be devastating to your business. A good way to get around this is to ask for a graduated payment, sat 30 percent up front, 30 percent half way through the project and then 40 percent when the project is completed. Sometimes customers will have doubts about paying this way, but you can easily bake conditions into a contract spelling out exactly how and when payments should be made.