Keeping track of customers who don’t pay their bills may be a challenging endeavor for any company. It is not just a financial burden, but it also has the potential to affect the company’s operations as a whole. It is critical for the owner of a business to deal with non-paying customers in a manner that is both professional and effective to lessen the negative impact on the company.
What Can Be Done to Prevent Customers from Not Paying?
It is always a complicated procedure to pursue a client who has not paid their bill; thus, it is advisable to avoid the problem completely by adopting the following steps.
1. Establishing the Boundaries of Your Expectations Immediately
When you and your customer initially agree to complete the job, this is the time to lay the groundwork for being paid. Before beginning the task, you should have a conversation about the rates you charge, the process for issuing invoices, and the deadlines for making payments. Create a formal service agreement to document your terms and conditions.
2. Pick up a Recurring Payment Plan
Determine a plan for making payments following the assignment. Set a due date, such as 30 days from the day the invoice was sent if you have agreed to be paid upon the completion of the project. If you are beginning work with a new customer, you may want to think about demanding a deposit or a partial payment before you begin the task.
When the job will take many months or more to complete, you should choose a payment plan that is broken down into monthly installments.
3. Give Discounts for Making Early Payments
If you give incentives for early payment to your clients who have significant outstanding bills, they may be more inclined to pay the whole amount and do so sooner. For instance, if you send an invoice for $20,000 that is due 30 days after it is received, you may give your customer a 3% reduction ($600) if they pay it within 15 days of receiving it.
You also have the option of staggering your early payment discount by reducing the amount of this reduction to 1% ($200) if paid between 15 and 30 days following the date of the invoice.
4. Consider Accepting Upfront Payments
When working on larger projects, it is common practice for small enterprises to request an advance payment of some portion of the total cost before beginning work. Some people anticipate receiving payment at various stages during the project if you learn how to accept upfront payments as one of the great solutions. In this way, if the customer does not pay the first invoice by the due date, you will be able to put a hold on further work and refuse to complete the project until you are paid in full. Or, you are aware that it is best not to even begin the job if they are unwilling to pay you upfront.
5. Allow For Payments in Installment
If slightly delayed client payments won’t substantially disrupt your cash flow, then installment-based payment arrangements may offer a middle ground for you and your customer that benefits both of you. You could maintain your cash flow while easing the burden on the customer by proposing a payment plan in pieces.
6. Levy Penalties for Late Payments:
To encourage prompt payment, including the late payment penalties and the dates they take effect on your invoices. After a certain amount of time has passed with no payment being made, you have the option of sending a new invoice to your customer that includes late payment fines. But you need to clearly express this condition to make it a preventative measure.
What Steps Should Be Taken If the Client Has Already Failed to Pay?
Do not immediately jump to the conclusion that your customer is purposefully attempting to avoid paying you if you are not paid promptly. There are a variety of reasons why invoices get unpaid.
It’s always a good idea to start with a kind reminder, and if required, you can gradually increase the level of urgency in your demands from there.
1. Send a Written Reminder Promptly When the Payment Is Not Received by the Due Date
Please resend the invoice along with a note stating that payment has not been received. You have the option of labeling the invoice as “past due.”
You are under no duty to provide your customer further time, but if you are working with a major corporation that requires a longer time to process payments, you should establish a deadline that is closer to one or two weeks out.
2. Send a New Invoice
There are instances in which customers attempt to postpone payment by saying that they have misplaced the bill or that they need to reconcile their records to determine the appropriate payment amount. If this is the situation, sending an updated invoice to the client, even if you are aware that the customer has the original copy of the invoice will be a smart move. This will prevent the customer from using the excuse that they already have it.
3. Pursue a Legal Action
You may take legal action by filing a claim. This is the most straightforward and expedient form of legal action available to you. Your argument should be rather simple: You will argue that the other party violated your written agreement by failing to pay you, and you will ask the court to rule in your favor and issue judgment for the full amount that is due to you. If the customer still does not pay after that, you have the option of turning the judgment over to a collection agency.
4. Last Resort: File a Civil Lawsuit
You have the option of taking your client to trial court if the amount of money that they owe you is much more than the limit that the small claims court in your state has set. You could choose to handle the problem on your own if it is a straightforward matter of debt collection, but you might also want to consider hiring an attorney for the limited purpose of providing you guidance on legal points or strategy.
