Getting your Customers to Pay-Up: Part 2 - Tips for Collecting from Non-Paying Clients
by Caron_Beesley, Community Moderator
- Created: March 23, 2010, 11:34 pm
- Updated: November 20, 2011, 1:19 pm
At some or several points in every business owners life, you can expect to deal with a non-paying or slow-paying customer. In my earlier post - Getting your Customers to Pay-Up - Part 1: Tips for Protecting Yourself from Non-Paying Clients - I outlined some measured approaches that your small business can put in place to protect it from the potential scenario of having to deal with a non-paying client.
But what if, despite these measures, you are confronted with a client that simply won't pay-up on time or at all? Here are some options your small business might consider for collecting or pursuing client debt.
Pursuing Payments - Have a Collections Plan to Fall Back On
We all want to get paid, but no one wants to lose a client - even if you never work with them again, you want to maintain your good reputation. So it's worth putting some thought to a structured and methodical collections plan for your small business. Here are some pointers:
1. The Soft Approach
- Re-bill overdue bills immediately - As soon as your first bill is past due, re-bill promptly as a gentle reminder. Alternatively send a monthly statement with the amount-owed (with interest) clearly labeled as past due.
- Know the book keeper and maintain a cordial tone - If a payment is past-due, make a point of seeking out and ask to be connected to Accounts Payable (call the client front desk or operator). Check whether the invoice was received and if you can help in any way. All the while maintain a steady and friendly relationship. Don't hang up until you get a verbal agreement confirming when the payment will be made. Follow-up over e-mail confirming the conversation and maintain a paper trail.
- Never apologize - Stick to your guns and never apologize for chasing payment or even consider bargaining, no matter how much empathy you feel for a client who is struggling financially or otherwise.
2. The Legal Approach
If your cordial approach has failed and the invoice runs past due more than 60 days, you might want to consider offering a payment plan. Alternate options include working with an attorney to issue a demand payment letter or filing with a small claims court. The latter is a cheaper option since a lawyer need not be involved.
What to Do if your Client Goes Bankrupt
If your client shows signs of going bankrupt, consult an attorney and always file a proof of claim. Warning signs that bankruptcy might be in the cards for your client can include slow payment, lack of communication, adverse industry conditions, etc. Once bankrupt, the debtor has the benefit of an automatic stay immediately upon filing a bankruptcy petition. This stops you from taking any further action to try to collect the debt unless, or until, the bankruptcy court decides to the contrary.
For more information on debt collection options and the legal and regulatory ramifications read the government's "Plain English Guide to Collecting Debts".
This "Small Business Guide to Managing Finances" also provides tips for accepting cash and checks, accepting credit
and debit cards, as well as extending credit. And this useful article from Inc.com – “*How to Collect from Anyone (Even Enron)” – offers tips for 30 ways to get paid in 30 days!
*Note: Hyperlink directs reader to non-government site.
Message Edited by CaronBeesley on 11-19-2009 08:13 AM
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