Just because you make a sale doesn’t mean that you have gotten paid. Collecting from customers can be a frustrating and time-consuming experience. In today’s economy, where so many customers and clients are strapped for cash, too many businesses end up with the short end of the stick (or perhaps more accurately the short end of the invoice). I talked to Ashley Bodi of Business Beware for some tips on how to get paid what you have earned when your customer is slow to pay.
CR: The best defense against non-payment is to get paid before you do work, correct?
AB: Yes. One thing that is very important to do before you take on a job with a customer is to require a certain percentage down. This will at least cover your materials in case the customer decides to not pay you after the work is done. Some businesses and industries aren’t able to charge an upfront fee, but if you can, DO IT. Charge whatever you feel comfortable charging them upfront and what you think will help you out just in case the situation goes south.
CR: Often non-payment comes from a dispute over services or goods rendered. What can you do to help avoid that situation?
AB: If the customer changes his/her mind during the time you’re working for them then you need to make sure you get it all in writing and use a “change order form.” This could save you big time down the road just to make sure that it was the customer’s idea for the changes and new materials etc. to be ordered.
CR: How can business owners go about collecting on payments due?
AB: When you do get in the situation of trying to collect from a slow or non-paying customer make sure to contact them and follow-up promptly about the final payment. If they choose to ignore you then send a simple letter with the invoice details and how much they owe. If you still don’t hear from them regarding your letter or follow up phone call, you can then try another letter. But often, if they don’t respond the first time, they also won’t the second time.
CR: So, other than sending in a guy named Vinnie who looks like he could have starred in the Sopranos to the customer’s offices, what do you do when a customer is ignoring you?
AB: Don’t write off these customers. It’s easy to say “well it’s been 60 days and I haven’t heard from them so I will just let it be.” Don’t do this. This is how you lose money and it’s not fair to you; you have put in the time and work. If the customer could not afford to pay in the first place then they should have never engaged you at all! And just because they won’t respond to you doesn’t mean you should give up on collecting what is rightfully owed to you.
The next step would be to use a collection agency. They help you contact the customer and tell them the same thing you told them in the first place, but with an official “name” behind it. These agencies charge around 20-50% of the money that you are trying to collect, usually on a success fee basis.
We also have a free “beware letter” service at Business Beware where we send a letter to the customer just as collections would, but without a contingency fee.
CR: When can you say enough’s enough, though? There is an opportunity cost to chasing payments and you don’t want to spend more time chasing payments than the value of what they are worth.
AB: That’s right. And if a business has had no luck collecting a past due amount, then the company can write it off as a “bad debt” on their books.
CR: Any final tips?
AB: Don’t let a lot of time go by before you try and collect from your customer who won’t pay. The longer you wait there is more of a chance that you will never be able to collect from them. If you let them slide they will take advantage of it. It’s like dealing with kids- if you don’t stick to what you say then they will keep doing the same thing over and over because they know they can get away with it!
Thanks to Ashley for sharing these tips. You can check out Business Beware at http://www.businessbeware.biz/
If you have a tip on collecting from customers (that doesn’t involve a baseball bat), share in the comments section below.