Wouldn’t it be great if your customers paid the entire price up front – before you started the job?
Although it’s not impossible to get such favourable terms, it usually doesn’t work this way. It all depends on your bargaining power, eg. if there’s little or no competition and your product or service is in high demand – you might be in luck. But most small businesses do not have that kind of power. You can, though, often set payment terms or put systems in place that minimise the risk of not getting paid.
What Can You Do To Reduce The Risk Of Not Getting Paid?
- Be clear about your payment terms and ensure your customers understand them. Include your terms in your “quote” so there is no cause for misunderstanding.
- Make sure you follow through on your terms of payment. The old adage is true here “give them an inch and they’ll take a mile”. Any slippage by you in this area will leave the door wide open for your customers.
- Don’t wait until the job is finished to invoice your customers. Get them to pay a part of your charges upfront (like a deposit). Depending on your industry, progress payments may be acceptable. A final payment can be made on completion of the job.
- Encourage customers to pay by credit card.
- Have as much of the transaction as possible documented and signed (wherever possible) – quotes, work orders, purchase orders, sales invoices, packing slips etc.
- Allow customers to take early payment discounts.
- For accounts that are past due, follow up with a phone call straight away.
- Consider charging interest on balances that are past due.
- Do credit checks on new customers.
Debtors Who Won’t or Can’t Pay
If you’ve got debtors who cannot or will not pay, there are a couple of ways you could deal with it:
- Work out an agreement that works for both of you. eg. Regular automatic payments to pay off the outstanding amount.
- Bring in the debt collectors or have someone outside your business manage your debts. As an independent third party they can handle your debtors in a way that you’d find difficult. This leaves your business with the debtor in tact.
- If the debt is small, you may consider writing it off and not doing business with that customer again.
- Take legal action? This may only cost you a lot of money and frustration, so beware. You may force your debtor into bankruptcy, but it will not guarantee that you get your money back. If the money’s not there, then it’s not there. Think before you go down this tunnel.
Your very best protection is to keep a tight control on your debtors.
Download our Free Report: Why You Should Become Your Own Banker