If you own a small business, you probably have job responsibilities in addition to running the business. You might be the sales manager, accountant, or human resources manager. Or all of the above!
When you wear your accountant hat, it’s up to you to send invoices, receive payments, and stay on top of invoices that are past due. You want to get it done fast so you can get back to taking care of your business.
But what do you do when a client won’t pay? How do you put pressure on customers when you don’t have the luxury of an entire legal department? It’s a dilemma, to say the least. You may not have the time and resources to handle a lengthy battle. Yet you held up your end of the agreement, and the money rightfully belongs to your company.
Here are a few ideas how to go about getting your hard-earned money, and also some ideas how to protect yourself in the future.
Dealing with non-paying clients can be a time-consuming process.
Before you do anything else, cease all work for the client. Then, attempt to contact the client via phone or email. Ask if there’s a problem, and offer to work out a payment schedule. Be understanding and patient, and don’t assume the worst. There are a number of perfectly legitimate reasons why they could be late with their payment.
If you’re unable to contact the client, or you don’t get a satisfactory reply, then send a late payment notice via certified mail. Give a deadline and an explanation of what your next step will be. Include notification that you will cease all future work until the account is brought up to date.
If the deadline passes and you still haven’t heard from the client, you have several options. You can pursue the matter in small claims court or hire a collection agency. Both options will involve time and money on your part. Another option is to just write it off and move forward.
Only you can adequately weigh the pros and cons, and then decide which is best for your company. If the amount is small, you may consider just letting it go. But if it’s a substantial amount, or if you have several clients who are behind on payments, then perhaps a collection agency would be worth the investment.
Being proactive can help ensure your money arrives when it should
There are several steps you can take to protect yourself from this occurring again in the future. It’s impossible to prevent non-paying clients, but you can hopefully minimize the damage.
- Offer a bonus for early payment. Whether it’s a small discount on a future invoice or something extra from you for free, this could be a great incentive to get your money in a hurry.
- Have a written contract when possible. If you have a verbal agreement, then summarize it in writing and email it to the customer.
- Form a relationship with your customer. Stay in contact and send periodic status updates. Give the customer an opportunity to provide feedback.
- If you have a large project, then require incremental payments. Don’t continue working on the project if a payment is missed.
- Impose a penalty for late payment. Clearly print the late fee on every invoice, so it doesn’t come as a surprise when you enforce it.
Owning a small business has enough responsibilities of its own. You certainly don’t have time to deal with non-paying customers. With a little foresight and planning, you can spend less time chasing money and more time earning money.
Amy Kirkegaard is a freelance writer who writes on a variety of current topics, including money-saving ideas, traveling on a budget, and healthcare recruiting.