Are you dealing with frustrating customers who refuse to pay their outstanding balance? We know and understand the struggle. This problem is common for small business owners to deal with. Debt collection can be frustrating. Fortunately, there are several solutions that you can take. Here’s what you should do when your client doesn’t pay their bills.
Does your business rely on invoicing to get payments from your customers? If so, then you might be familiar with late payments or, worse, nonpayment. There are plenty of reasons why clients refuse to pay their invoices on time or not pay at all. It can be due to a surprise additional fee wherein your client cannot afford to pay, or simply a lost bill. No matter what the reason may be, asking for overdue payment from your clients is challenging. In most cases, small businesses wonder how they can do it without sounding rude or arrogant.
No matter the situation, late or nonpayment can hurt your business in the long run. So you need to think of a solution right away on what to do when a client doesn’t pay if you want to maintain a healthy cash flow and keep your business open. That’s why having a plan against delayed or nonpayment is key.
Reasons Why Customers Don’t Pay on Time
To fix the issue of nonpayment, you need to find out why your clients are not paying you in the first place. Keep in mind that it’s not always their issue. Sometimes, it can be yours. So, to give you an idea, here are five reasons why your customers aren’t paying you on time:
The Language in Your Invoice Isn’t Strong Enough
Invoicing requires you to “command” your clients to pay you without being rude. For example, sending your invoice with unclear notes will ensure that your bill will move further back in your client’s priority list. Instead of a vague message like “payable on receipt,” set a firm deadline and mention the consequences for non-compliance.
Be courteous but clear from the beginning. Once customer compliance starts to decline, accelerate the use of emphatic words as you attempt to collect payment. If you’re too busy and need to resort to a collection agency, ask for samples of their communication style first. See if it’s in line with yours. That way, you won’t subject your customers to an unnecessarily unpleasant experience. Make sure the collection agency understands your policy. That way, you won’t have to deal with any misunderstanding.
The Quality of Your Product is Declining
Once your product or service quality starts to dwindle, you need to do something about it. Otherwise, you will deal with multiple clients who refuse to pay their bills. Reach out to your manufacturing people or service providers and let them know that quality has become a serious issue that invoices are not being honored by your customers. Tell them to fix the issue right away before things get out of hand.
You’re Not Delivering as Fast as You Should
If the product or service isn’t the problem, you might want to look at the pace of your operations. Maybe a part of your team isn’t performing up to their standards. While you’re not in control of the individuals fulfilling the orders, you’re still responsible for keeping the income flowing. If your delivery is lagging, you might want to suggest changes and new procedures be put in place.
You could add a survey on your invoice that goes like, “was the delivery of your products (or services) later than you expected (or were promised)?” By asking this question, you’re asking your customer directly if they were satisfied with the speed of the delivery of products or services. Make sure you ask all of your clients this question. If you start to see a trend, it would indicate that your business is lagging.
Make sure you take advantage of every opportunity that you have to convey that your company cares for its clients. But, again, it’s a give-and-take situation. Customers tend to feel complacent about paying you on time if you also don’t deliver on time.
You’re Not Offering Convenient Paying Options
Another reason why your clients aren’t paying you on time is due to your payment options. You may lack several payment options, or the ones that you do offer may not be convenient to your customers. So, make sure you open your arms towards multiple payment options. Include online payment methods like PayPal, Wise, and more.
If you want to make payment a lot easier, you can always build your invoicing system around a compelling platform like ReliaBills. It offers a safe and secure payment gateway that will enable your client to pay all in one place.
Your client won’t pay you because you either sent the wrong item or that you did the wrong type of service. In most cases, your customers don’t feel like packing the item and shipping it back. In this case, here are some options you can take:
- Make returns as hassle-free and straightforward as possible.
- If an inexpensive item was shipped, let them keep it while you send the right one quickly.
- Be diligent about customer feedback so that you can better understand their concerns as to why you’re not getting paid on time.
- If you’ve rendered the wrong service, be accountable for your mistakes by charging them the service for free and offering them a chance to acquire the right type of service again for a discounted price.
7 Ways to Collect Overdue Payment
So, what to do when a client doesn’t pay their bill? First, let’s talk about what you should do when a client refuses to pay an overdue bill. It’s important to know that you’ll need to deal with the problem head-on. Being straight-to-the-point doesn’t always have to mean being aggressive when it comes to asking for payment. If your client wasn’t able to pay their bill on time, here are six ways that you should do to make sure you get paid while maintaining a good and open relationship with your client:
1. Disclose all payment terms before committing to a project
Before you start a project, it’s important to put everything on the table right away. Not only does it set payment expectations for your client, but it also builds the trust factor necessary for a strong and healthy customer relationship. Make sure your client is fully aware of the project’s total costs. At the same time, encourage the client to ask as many questions as they need before closing the deal.
Having this level of clarity at the beginning of a business transaction will help solidify the customer’s trust. At the same time, it will also guarantee their commitment to paying the full amount on time. If the cost changes along the way, inform your client not to have to deal with the sudden price increase.
2. Bill for the Work Upfront
If you think using an invoicing system is too risky for your business, you can opt to bill your customers upfront. Payment upfront is an effective strategy that will ensure your payment before you even start the work. Some experts like Gilded Agency’s Mat O’Flynn believe that the only way to mitigate delayed payment or unpaid invoices is to ask for full payment before starting any work.
Some customers may be skeptical about paying the bill before receiving any work. It’s a reasonable reaction since they’re releasing money without even getting the value in exchange yet. To give them some assurance, encourage them to read the testimonials on your website or reach out to previous satisfied customers. You can even sign a contract to make sure they have additional proof that you will render the work they are paying up front.
This strategy works even better if your business already has a spotless track record. If not, you can start by taking care of your current customers to establish a positive reputation. What’s important is that you show your customers that you care for them. Once you’ve built a good reputation, you will earn the right to take payment before starting a job.
If you’re still dealing with customers who don’t prefer paying the full amount upfront, you can opt for a deposit instead. Don’t be afraid to turn down clients who, you think, are not capable of paying you upfront. This sign is usually evident right from the start. If your client has an issue with paying upfront, there will likely be issues with future invoices. So save yourself the burden by turning down a business opportunity if you think the client is going to be a problem in the future.
3. Send Invoices Right Away
One of the most important things you shouldn’t forget as a small business is billing your customers right away. No matter how many tasks are on your plate, you should always find room for invoicing. If you neglect to invoice, you might keep forgetting to send your invoice in the first place. Going after a client for payment on a bill that you never even sent them will hurt business in the long run. Clients will deem you unprofessional, and your reputation will take a massive hit. So, make it a habit of sending invoices on time to avoid any disputes with your clients.
4. Be Persistent with Late-paying Customers
If your customers are unresponsive to your emails about their bills, make the effort of reaching out to them by making a personal call. Also, don’t be afraid to be persistent. If they’ve already accumulated multiple late payments, make sure you keep calling them every day until they pay the invoices that they owe to you.
Keep in mind that there’s a difference between aggressiveness and persistence. The key here is to not be aggressive in asking for payment. Instead, you don’t stop asking for it. Small business insurer Hunter Hoffmann encourages wants you to emphasize that you intend to settle the accounts so that “both parties can focus on more important matters.” Using this approach will become much easier for your clients to pay you rather than making excuses and avoiding your calls.
5. Charge a Fee for Late payment
No matter how much it would cost, no one wants to pay for late fees. That’s why including this in your payment policy upfront can help prevent customers from paying their invoices late. Reinforce your invoicing system by placing a policy or terms of conditions. Make sure your clients read and understand your policy before closing the deal.
For example, if your clients don’t pay within five days after receiving the invoice, they will get a warning. If they fail to make payment within ten days, they will get a late fee. Charge another late fee after five days. Once your client reaches 20 days of nonpayment, they will lose your services. You have done everything, and they still won’t settle their account; you can then pursue legal action.
6. Set-up a Payment Plan
For customers who are having issues with their cash flow and can’t afford to pay your invoice in full upfront, offer them a payment plan (or payment schedule) instead. A payment plan in place will ensure that you will get paid on time. As part of your customers’ payment plan, negotiate a particular amount that your customer can afford. Make sure you specify the period where payments will be made.
7. Create a Survey
Sometimes, it’s also essential to hear what your clients have to say. Maybe the reason for the delay in payment is on you. It could be that you aren’t sending them invoices on time or that you failed to inform them of the changes in pricing. They might even have issues with the quality of your services without you knowing it. You can even add product and service reviews to determine whether you satisfy your customers at the end of the survey.
There are plenty of reasons that you don’t even know about. That’s why you must create a survey about your business’s performance. The survey should detail how your services are doing and what you can do to get better. Also, include a section where you will ask your clients for direct feedback on your business. Make them state the things that they think your business is lacking.
By creating a survey or feedback section on your website and acknowledging what your clients are saying, they will be assured that you care and listen to their opinion. In turn, they will more than likely pay you on time. You won’t need a collection agency to help you know the strategies you need to employ.
Follow this guide when if a client doesn’t pay their bills. Once you’ve established a solid payment plan, you can expect payment to be made on time or even earlier. Don’t forget to entice your customer by adding promos. You can offer early payment discounts. If your client owes you money from the previous billing, make sure you follow that up as well. Send them a demand letter or add them to your vendor partner’s contact for easy communication.