Blog & Company News
Sep 4, 2013
Tips for Handling a Late-Paying Customer
One of the challenges of operating a small business or consulting firm is making sure you get paid. Some customers understand the basic equation—you provide them with a valuable product or service and they compensate you in return. Other customers seem to either forget this or never really get it. Unfortunately, it’s nearly impossible to predict ahead of time what type of customer you’re dealing.
Nearly impossible—but not completely. If your business is still just getting off the ground, you may be tempted to take on anyone who claims to be willing to pay for your offering. But you can save yourself a lot of aggravation (and unpaid invoices) later on by doing some “due diligence” before signing a contract or agreeing to move forward on a project.
Start with a Google search of your prospective customer and see what you find out. Ask to meet the customer at their office. Sometimes this alone is enough to set off warning signals you can’t ignore. Other factors to include in your evaluation:
- Does the business have a functioning website?
- Does a human being answer their phones?
- Can they demonstrate in any way that they have sufficient funds?
If what you uncover seems questionable or worse, your best bet is to
just walk away. There’s no point in working hard on behalf of a customer who’s not going to pay you.
Here are some other best practices to follow which can help tilt the odds in your favor:
Bill promptly.
As soon as you complete work on a project (or deliver your product), send out an invoice. Any delay in billing guarantees a delay in receiving payment. (For a large consulting project, many contractors only begin work after receiving payment for half the total amount up-front.)
Send a professional invoice.
Every invoice you send should clearly be marked INVOICE at the top. Give each invoice a unique number, together with a detailed description of the service provided. Also include your federal company ID number (or Social Security number), as well as a vendor number, if one has been assigned to you.
Establish a late-fee arrangement.
Make it clear to your new customer that a penalty fee is charged for late payment (and state that clearly on your invoice). If a contract is involved, it should include wording clearing noting that any account not paid within agreed-upon terms is subject to a monthly finance charge (specify what percentage you feel is appropriate). This shows you take payment for services provided very seriously.
Know who to contact.
Ask your customer who handles payments on his or her behalf and get that individual’s contact information. If you’re asked to send your invoice to that person directly, always include your customer’s name for easy reference.
Different options for different types of customers
Let’s start with the “forgetful customer.” He says you’re going to get paid, he may even say, “Your check is in the mail.” You’ll learn soon enough whether he means what he says.
Your primary recourse here is to remind them that payment is due—and remind them again. A week or so before payment is due, send a politely worded reminder letter. If that date comes and goes, contact them by phone. If another week goes by, send another reminder letter. Sooner or later, the customer will “remember” his obligation and send payment to you. If not, you may have to resort to writing a collection letter. (The National Federation of Independent Businesses offers
some valuable tips on how to word such a letter.)
What about a customer who’s hit hard times or is waiting for someone to pay them before they can get to you? These days, this isn’t an outlandish scenario. Your option here is to devise a creative type of reimbursement solution. Work out a plan so they can begin sending payments of small amounts on a monthly basis. Eventually you should receive complete payment—and the customer will appreciate your flexibility and patience.
If the customer turns out to be a complete deadbeat, your final option is to turn the matter over to a collection agency or sue the customer in Small Claims Court. In these cases, it’s critically important to handle the matter in a professional manner—expressing anger or frustration will get you nowhere and likely slow the process.
If the situation comes to this, chalk it up to
a valuable learning experience. You’ll be better prepared when you start doing with your next new customer.
One of the challenges of operating a small business or consulting firm is making sure you get paid. Some customers understand the basic equation—you provide them with a valuable product or service and they compensate you in return. Other customers seem to either forget this or never really get it. Unfortunately, it’s nearly impossible to predict ahead of time what type of customer you’re dealing.
Nearly impossible—but not completely. If your business is still just getting off the ground, you may be tempted to take on anyone who claims to be willing to pay for your offering. But you can save yourself a lot of aggravation (and unpaid invoices) later on by doing some “due diligence” before signing a contract or agreeing to move forward on a project.
Start with a Google search of your prospective customer and see what you find out. Ask to meet the customer at their office. Sometimes this alone is enough to set off warning signals you can’t ignore. Other factors to include in your evaluation:
