Finding, getting, and keeping customers is the challenge every business faces. Very few are lucky enough to have new prospects lining up at the door. However, how can you be sure that the customer, after all your hard work, will pay? What can you do to get a client to pay an invoice—and pay on time?
Suffering a non-payment event—whether it’s your first, the most recent, or the most significant—can feel overwhelming. Damage to companies caused by non-payment of invoices is never solved overnight. Restoring optimism and trust is an ongoing challenge.
Non-payments can actually add up and damage your company on multiple fronts. Even ignoring a relatively-small invoice can hurt your bottom line—especially if you depend on receiving a payment in time to pay expenses or if you rely disproportionately on a small number of clients, AKA “.”
So what do you do when a customer doesn’t pay?
Knowing where to start is essential.
How to Avoid Non-Payments from the Start
After a few years of trading with a given customer, you may feel that the relationship is great and you can trust your customer, so these problems will not affect you. You may believe that because the organization is large, it will pay your invoice to protect its reputation. Perhaps the account has assured you that a budget is in place and there is no danger of nonpayment. Your sales team may have checked the credit history of the customer elsewhere and be confident that the customer is financially robust. These indicators are all important, of course, but don’t be surprised if payment delays do occur.
In order to avoid non-payment from the start, it helps to understand a little more about how the event occurred in the first place. Begin by asking yourself the following questions:
- Did you have systems in place to prevent loss or limit your exposure?
- Did you get contracts signed?
- Did you outline your deliverables and payment terms?
Getting a Client to Pay an Invoice after Nonpayment
It’s difficult when a customer misses a payment—especially when it’s one you have grown to trust. How can you convince them to make a payment? Start with these four steps below, and remember that nurturing the relationship with your customer is of the utmost importance. Fostering open communication with your customers can save you from hefty legal fees and court dates in the end.
1. Contact the customer
The first step is to make contact with the customer. Sometimes a phone call or resending the invoice is enough to secure payment. If this doesn’t work, explain the consequences of nonpayment for your particular business courteously—whether it’s discontinuing their service or reporting their delinquency to a credit-rating organization.
2. Call a collection agency
If you do not find success contacting the customer, you may consider calling a collection agency. This helps free up your staff’s time for other work and delegate responsibility to the agency. This may be the best solution for small payments, as you often won’t have to put up any money—the collection agency will just take a part of the recovered sum. For larger delinquent payments, filing a lawsuit may be warranted. Talk to your attorney about how to proceed in your state; you may not need representation for the proceedings, but it is a good idea to get legal advice before following a suit.
3. Pay attention to your staff
In severe nonpayment events, your cash flow may be damaged, and employee morale may be impacted—especially if you have to introduce job cuts and other cost-saving measures to remain competitive. In these cases, it benefits you to foster open and honest two-way communication between employees and management about the situation: what is being done to resolve it and how it will be avoided moving forward. Maintain trust by making sure that payroll is satisfied and that employees have clear expectations about when they will receive their checks. If you have to get a bridge loan or pursue financing to ensure these payments, do so. If your employees stop trusting you, you could end up facing even bigger issues, like non-attendance and loss of reputation.