Having to chase late payments is sadly an experience most people in business have to go through at one time or another. But knowing when irritating delays have crossed the line into a breakdown in the business relationship can be difficult to fathom.
Cash flow is important, but long-term survival depends on holding on to the clients that you invested in.
Patience is often hailed as one of the great virtues of business. And there are valid reasons for a payment not arriving on time; clerical error, family problems, illness and so on. But once excuses become endemic, it is natural to begin to question whether that clients’ business is bringing any benefit to your own.
So when is it time to cut your losses and say goodbye?
In the spirit of patience, the best advice is simply that it should be the last resort.
Trust is important in business relationships, especially if they are long-standing. Jumping the gun and threatening termination with a usually reliable client who misses a payment will lose you more money than it recoups in the long run.
- Talking to the client is the obvious first step
- Try to speak face-to-face, or on the phone
- Remain polite and professional.
- Explain to them why the terms of payment are important to your business keeping on an even keel, and suggest there might be a compromise that could be reached
- If a client refuses to meet you half-way, then be firm and lay out some deadlines for payment.
Content continues below
A fundamental characteristic of late payment legislation so far has been its voluntary nature - nobody forces big businesses to sign up to the Prompt Payment Code, and nobody forces SMEs to charge…
The Parliamentary report into the collapse of disgraced outsourcing giant Carillion has certainly pulled no punches. Amongst the tastiest soundbites, MPs have accused bosses of ‘stuffing their mouths…
The government’s much-vaunted ‘Northern Powerhouse’ may have turned out to be little more than a catchy phrase scribbled down on the back of a Chancellor’s fag packet. But at least contractors and…
Credit control is an important part of running any business effectively, but for small-business owners it can have an even greater significance. When you rely on a regular income to cover your…
Using a Stop List
In truth, the best way to deal with payment problems is to maximise the likelihood of a client paying in the first place. Aside from the quality of the work done, and the quality of the relationships you build, one of the most effective ways to do this is to have a ‘stop list’.
- If a client does not pay on time, the work stops
- Further orders do not get fulfilled until payment clears
- You should have a credit limit for each customer, so you know when to stop providing goods or services
- Be fair about the way impose the stop; give reasonable notice, and negotiate with the client wherever possible
- Credit checking is a valuable tool in defining the credit limit you set.
Losing a service is often the jolt people need to pay up, but make sure the ground rules are clear. If you use a stop list, make sure it is explained clearly in your terms and conditions. Otherwise, stopping work could have you in breach of contract.
Also, if you have a stop list, you must be prepared to act on it. Otherwise, it just becomes an empty threat.
Can’t Pay, or Won’t Pay?
Some clients just can't or won't pay on time and as a business owner you need to identify those clients that just won't pay on time, from those that can't pay on time. if your client is a won't pay, then taking further debt recovery action is the next step. You'd be amazed how compliant even the most reluctant client becomes when they are contacted by an experienced debt collection company and provided you choose your debt collection agency with care, they may actually help you retain your client and help improve their accounts payable practices.
For those that fall in to the latter can't pay category taking swift action to recover what is owed is even more important, as if your errant client has liabilities of £20k and cash reserves of £10k those creditors that act fastest are significantly more likely to be paid in full than those that don't.
If you would like more friendly, impartial advice on how to deal with non-paying clients, we have more than 30 years’ experience recovering overdue invoices and helping our customers to manage their cash flow. We offer honest, straightforward credit management and debt collection services and support to businesses of all shapes and sizes. If you have a customer you are concerned can't or won't pay what is owed then get in touch with us here for some expert advice and support.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.
Image "To-Do List" by John Schultz shared under CC BY 2.0