For entrepreneurs and new business owners with little experience “running the show,” it’s easy to take things for granted. For example, you assume that by doing the work you promise or delivering goods on time, your client will quickly reward you with the money you’re owed. Unfortunately, in the business world this doesn’t always happen. Some of your clients won’t pay on time, while others may not pay at all. Knowing how to deal with these issues can increase your chances of getting paid and diminish the risk of going out of business.
Making Clients Pay on Time
While you can’t physically force clients to pay, there are a number of things you can do to encourage them to pay up. Here are a few tips:
- Look professional. From the start, it’s important to look professional and experienced – regardless of whether this is your first time dealing with an outstanding payment or one hundredth. One of the best ways to ensure consistency throughout the process is to use an automated invoicing solution that tracks and handles all aspects of the payment process. Online accounting software can give you the flexibility to customize invoices and event accept online payments.
- Always be proactive. The longer you wait, the less likely it is you’ll ever see the money you’re owed. This makes it incredibly important to take action as soon as there’s any sign of a delay. While some companies have a policy of not addressing late payments until they are 24 or 48 hours past due, this can come back to hurt you. Many companies will test the waters and see how long they can get away with it. If they sense any sign of weakness or timidity, they’ve got you where they want you.
- Be persistent and personal. When you do notice one of your clients has an outstanding payment, it’s important to be persistent and personal. Avoid the temptation to send an email, and instead pick up the phone and make a call. It’s a lot harder to avoid paying a bill when you hear a voice on the other end of the line. Furthermore, if the client is local you may even consider showing up at their office and asking to speak to someone.
- Stop your services. If you’ve consistently contacted the client over an extended period of time and made every effort to collect, it eventually becomes time to stop your services altogether. Much like a cable provider cuts off access if a customer doesn’t pay a bill, you too should pull the plug. This can be a big wakeup call, especially if your client heavily depends on your services.
- Take action. If the outstanding payment is somewhere between $2,000 and $7,500, you may be able to take the client to small claims court. The benefit here is that you don’t need a lawyer, it’s fairly quick, and relatively inexpensive. The threat of legal action alone may be enough to get the client to pay up.
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What Not to Do
In addition to knowing what to do when clients don’t pay, here are a few tips for what not to do:
- Work with everybody. You shouldn’t accept new clients without first doing some due diligence to find out more. Things like customer reviews, credit history, and industry reputation can help you decide whether they’re worth working with. If a client is questionable but worth taking a chance on, it’s wise to protect yourself. According to Ashley Bodi of Business Beware, “If you’re getting ready to work with a [risky] customer the best thing you can do is get half upfront from the start.”
- Make empty threats. If you aren’t going to take a client to court, don’t make an empty threat of legal action. You’ll end up looking weak and will destroy any chance of getting paid.
- Get heated. While personal and persistent confrontation is important, you should avoid getting heated with clients. Be stern, but remain calm. Bad-mouthing or raising your voice will only worsen the situation.
Position Your Business for Success
While owning your own business may be your dream, it’s important to fight for that dream by positioning yourself for success. In addition to developing valuable products and services, it’s important to get things like invoicing squared away. Use these tips to ensure your clients pay on time, every time.