Every small business owner knows the stress that comes with clients who don't pay when they're supposed to. It affects your cash flow and your ability to pay your own suppliers. You should have a formal process in place for when this happens, which it inevitably will.
Sometimes, there is a valid reason for a payment not being made and this is that your client has not received the relevant documentation from you. It's your responsibility to find out exactly what paperwork each client needs in order to make a timely payment, and to send these with your invoice.
Your written invoice must clearly state exactly how much is owed and what the terms of payment are. Encourage your client to let you know if there's a problem or something missing, as soon as they receive your invoice. Send these in a timely way, with increasingly firm insistence for payment.
It's natural to feel angry at a customer who delays payment, especially when there's a large amount of money at stake. But remember that it's still a customer, and if you become overbearing or obnoxious in your collections efforts, you can turn off the customer.
You can be aggressive in your collection efforts without infuriating the customer. However, if he or she becomes so un-cooperative about paying in a timely way that you'll have to decide whether this is a customer worth having.
Tips for collecting on overdue accounts
Debt collecting is never pleasant, but it's a must. Follow these suggestions to make the process as painless as possible.
- Start your collection efforts on day 31. If you wait until two months or more have gone by. The longer you wait to begin your collection effort, the more difficult it may be to collect because of mixed up paperwork or reassigned contacts
- Work through purchasing or accounts receivable. Try to deal with someone other than your regular contact. In this way, you reduce the chances of irritating the individual
- Get commitment to a specific time for payment. Once you get a contact and get agreement that the invoice should be paid and the date for payment. If the payment isn't made on the agreed date, you gain some leverage; no one likes to be seen as being dishonest.
- Follow up regularly. Assuming you don't get the right person or commitment to a payment date, try not to let the matter get lost in your own priority scheme. You may even have to follow up daily until you finally get the right person and get a commitment to payment.
- Be prepared to take tougher action. If none of the previous tactics work, consider telling the customer that you will initiate collections procedures and even court action if necessary. Let them know that while you don't want a fight, you consider it important that everyone honour their part of the deal, and you already honoured yours.
Remember these pointers in your own payment process as well, and don't become on of "those" clients that need to be chased for money.
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