An important aspect of a business is collecting payments from customers. After all, these payments are what keep the lights on. If you put in hours or days of work on a project and a customer never pays for it, you’ll have wasted your time, talent and energy in more ways than one.
A report from Entrepreneur revealed that the average small business in the US is waiting on a whopping $84,000 in unpaid invoices. When customers pay late or don’t pay at all, they put companies in a tricky situation. Although maintaining good relationships with your clients is important, they won’t do your business much good if you’re not receiving any payment.
How can you obtain payments from difficult customers?
A lot of business owners allow late-paying customers to slide, whether because they’re too busy to track receivables or they don’t want to offend or confront the customer.
Don’t be that kind of business owner. Use your company’s accounting software to review your receivables every week. Then, come up with a system for following up payments that are 60, 45, 30, 15, 7 and 3 days late – and stick to it.
When following up, send a reminder letter. You can send this by regular postal mail, via e-mail or both. Letters are a polite way to let customers know of any payments that they may have overlooked.
Make a standard form letter you can use in each situation. This document should contain the outstanding amount or balance and the original due date.
You could also outline your available payment methods in the letter. You could, for instance, say that you accept various forms of payment, including pay by mailed check, credit card, digital prepaid card (if the customer decides to settle the balance online) and over-the-counter payment at the nearest bank. Including this information will make paying your balance a little easier for your customer, as they have multiple payment options at their disposal.
Another piece of information you can add is a statement asking the customer to get in touch with you to discuss payment. This provides the customer with an “out” in case they encounter a problem on their end.
If you have not received a payment or heard a word from your customer for 30 days, you or your staff will have to get on the phone. Phone calls are more difficult to ignore than letters. Talking to you, in many cases, can spur a client to disclose what’s preventing them from paying.
If you are planning to call the client, don’t get angry. Your goal is to find out what their problem is and how you can obtain the payment from them. Evaluate how valuable the customer is to you, how much of the money owed you can hope to recover and how likely they are to recover from their current financial struggle.
When you are on the phone with the client, you have two options. The first is to offer an installment plan if the customer is unable to settle the outstanding balance in full. A person who is unable to pay $5,000 lump sum may be able to pay $500 a month for 10 months or $250 a month for 20 months.
Depending on the agreement with your client, you may also charge late or interest fees. If this is going to make paying the outstanding balance difficult for your customer, consider waiving the fees and charging only the original amount.
Alternatively, you could ask for partial payment. If the customer owes your business $5,000, you could offer to accept $3,500 or $3,000. This way, you get some money quicker at the cost of a long-term loss.
If the customer doesn’t budge despite all the assistance you’re providing, consider taking legal measures. Hire a lawyer and ask them to write a demand letter – a certified written document that threatens the client with legal action if they refuse to pay the debt. Customers who are not intimidated by phone calls and reminder letters from a business may take action if they receive a demand letter.
If you have chronic late payers, make sure that you keep reaching out to them until they pay. You don’t have to be aggressive. At the same time, don’t stop asking. During your calls, stress that you want to settle the outstanding balance, so you can both move forward and focus on more important matters.
When a customer pays late or doesn’t pay, don’t put them on the backburner. Collect payment from them to keeping your business going.