9 tips for dealing with non-payers

Non-payment can cause serious cash flow problems for any small business. Unfortunately, non-payment is also an unavoidable liability for most small businesses. Many small business operators feel baffled and bewildered when facing issues of non-payment — especially if a non-payer is a repeat offender or the if the amount of money owed is considerable.

How do you deal with non-payment in your business?

1. Require payment or partial payment up front for products or services (e.g. a deposit to cover your fixed costs). A customer can’t take their groceries home without paying. When you supply products or services with an invoice period, you essentially become a creditor. You’re doing your client a favour by giving them something before they remunerate you. Requiring a minimum deposit is fair and minimises risk of non-payment.

2. Avoid doing business with large companies who don’t care about you or respect you in interactions and negotiations. Big corporates can often be guilty of pushing down your rates, snaring you in long-term contracts, treating you with indifference, then failing to pay you on time. Basically, you cannot easily bargain with a business on completely different footing. Size sometimes equals leverage, and it’s in your best interests to conduct business with like-sized companies — unless the big corporate offers something that you can’t get anywhere else.

3. Don’t do too much business with one company (i.e. don’t put all of your eggs in one basket). Have a back-up or Plan B in case projects or products ever go wrong. Of course, when you are first starting out, it can be difficult to avoid exclusive dealings (either on the client or the supplier side): if you lose a contract or deal, it can break you. But it’s worth having something — or someone — else up your sleeve at all times.

4. Understand contracts. A quote or service agreement document are both examples of contracts. Unless you’re a business of considerable size (e.g. Telstra), having a complex contract drawn up by a solicitor usually represents an unnecessary expense. An engagement letter, on the other hand, is always a good idea. An engagement letter outlines what is expected of each party over the course of a project. Consider professional indemnity insurance, too — just in case a client ever tries to take a piece out of you.

5. Forget sending generic, template statements. They can be annoying, and are easily ignored by intentional non-payers. We have found that an invoicing period of 14 days is optimal. We also suggest that you wait until 45 days after the due date before chasing payment. At the 45-day mark, send a letter or e-mail with the original invoice attached and a message that includes the invoice number, invoice amount, invoice due date, and a request for timely payment. Follow up the letter or e-mail with a phone call once the client has had enough time to receive the message. Ask the client when they think that they will be able to pay the invoice. Record the day/date. If the client does not pay within the promised time-frame, remind them that they communicated this date as the cut-off. Ask them to confirm another date of payment. Repeat as necessary.

6. It doesn’t hurt to be honest with a client about the impact of non-payment. As a small business, reliable payment for products or services rendered is imperative for sustaining cash flow. Remind your client that their business is valuable to you but that you may not be able to work with them again or any more if you do not receive payment. You may even operate on a policy of providing products and services only when you have received payment for the previous invoice.

7. Factor non-payment into your rate — hopefully, this will come to no more than 2% of your total gross sales. Over the course of a financial year, most small businesses have to write off some projects as debts. Your planning needs to take this into account.

8. Usually, if a client has paid a few times, you will not have trouble with them paying in the future. However, this is not always the case. Be consistent with chasing your debtors, no matter who they are. Yes, it takes time — but this is another reason to factor non-payment into your rates.

9. Last, but not least, be nice to people — even when chasing for payment. While it’s tempting to be aggressive and pushy towards a client when owes you money, poor negotiating only compounds the situation and can come back to bite you. No business owner wants annoying phone calls, bad word-of-mouth, or abuse to their employees or property. Be the better person. Business involves gambling with people from time to time. Sometimes you lose out, and the only good option left is to walk away graciously.

At some point, we all hope that our businesses will expand to include a client base that allows us the position of picking and choosing only supportive, attentive clients. Early on, the risk of culling clients is that you may be left with too few. Then — if one or two of your good remaining clients leaves — you’re out of work.

Keep your values and options in mind whenever you take on a new client or project.

Will it be worth it?

Developing the skills of assertiveness, negotiation, and tenacity are important when dealing with non-payment in your small business. But learning when to let go is just as crucial.

Be flexible: respond to and minimise problems, but know when to walk away, too.

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