As a business owner, you’re bound to come across one sooner or later: the customer who doesn’t pay on time — or at all. What should you do when this happens? In this report, we’ll discuss several strategies to help you effectively deal with this frustrating and inevitable issue.
Part 1 [In this blog series, you’ll find helpful tips for dealing with late or non-paying customers provided by Susan Konig, freelance business writer who writes for numerous publications including, The New York Times, Crain’s New York Business and Registered Representative, a national publication for financial advisors.]
An ounce of prevention…
Experts agree that the best way to deal with late-or-non-paying customers is to protect yourself from them from the start. There are several things every business owner should do before taking on a new client:
- Just because a potential customer seems happy with your upfront terms doesn’t mean there are no skeletons in his ‘financial’ closet. It’s important to run thorough credit checks on anyone you plan on doing business with. Individual checks can be done via the three major national credit reporting agencies: Equifax, Experian, and TransUnion. For business credit checks, there are several fee-based options available. Should any red flags appear, further investigation is obviously warranted before you enter into a business agreement.
- Sit down with prospective clients and clearly explain your prices, fees, and payment requirements. Put everything in writing. This also includes details of your ownership rights and intellectual property, if any, and all your work orders. If you work on retainer or under contract, clearly state the services you will charge for, the goods or services the customer will receive, and goods or services which will incur additional fees. It makes sense to have an attorney create a general agreement that conveys all of this and is flexible enough to be used with all of your clients.
- Let potential customers know how often you’ll bill them, and how long they will have to make payments. This, too, should be in writing. Stress that it is not a personal issue, but rather something you require of every client because you simply can’t run your business effectively without receiving timely compensation for your work.
Some additional pointers:
Always keep on top of accounts receivable. Send out invoices promptly and on a regular basis. Make sure they are easily distinguishable from the barrage of other mail your clients receive. Many businesses stamp messages like “statement enclosed” on the envelopes so they’re not pushed aside or tossed out. Send reminder notices to any client who doesn’t pay within a predetermined time frame (anywhere from 10 to 30 days). These, too, should be clearly marked.
If a client still doesn’t pay, have your accounts receivable department – or a designated employee – give him a call. Having another person handle payment issues will make it easier for you to maintain a good working relationship with your clients. The person who does make the call should not chide the client for nonpayment. Have your employee ask if there’s a problem, and if there’s anything your company can do to help.