Maximize profits: Collect the money your customers
Mr. Man seemed like the perfect client. He discovered you through your latest
advertising campaign and was eager to work with your company. After meeting at his
office, he immediately signed the contract and gave you a deposit. You fulfilled the
product or service order in record time and are sure this project will be closed out in the
next month. Great turnover, right?
Fast forward to 4 months later...after numerous phone calls, e-mails, and invoices, Mr.
Man has STILL NOT paid his remaining balance. In some cases Mr. Man may deny he
owes you. In other cases he may complain your product or service was substandard and
insist that he should not pay (despite the glowing comments he gave your work before).
What should you do about this? As small business owners, many of us shy away from
these types of confrontations, but no more. Read on to see what you can do to collect the
money your customers owe you and steps you can take to make the process easier.
Before the Problem Occurs:
The best time to stop the problem of unpaid clients is before the issue occurs:
Ensure you include payment terms and repercussions for late/non-payments in your
contract. This way you have legal recourse if it comes to that.
Be clear on the company's payment policies. Larger companies tend to require more
paperwork than smaller companies.
Ensure your invoice are clearly and promptly executed. This way clients understand how
much they owe and why they owe that amount.
Keep good records. Enter every payment received from the client and be sure to update
the latest invoice to them with this information.
Keep all correspondence pertaining to the project or sale. This includes e-mails, faxes,
and phone logs. Many times the client will acknowledge the good work you've been
providing or even mention a payment he or she will be sending in shortly.
After the Debt Remains Unpaid
Sometimes you can follow all the steps listed above and still receive a "Mr. Man" type of
client. Here are steps you can take after the a client's invoice has become delinquent:
Contact the client as soon as the account becomes delinquent. If your invoice has terms of
15 days, then you should be contacting your client on day 16.
Continue with follow-ups. If you slack off in contacting the client about the unpaid debt,
he or she may think that you have written it off. Remain diligent.
Contact a collections agency. Sometimes you need more than a phone call or e-mail
reminder for your company. Some agencies
are even able to list the debt on the client's credit report as unpaid. However, a client who
is reluctant to pay you is probably reluctant to pay others as well. Damage to a credit
report may not be as strong a threat. Remember, most collection agencies take a portion
of amount owed as their fee.
Take the client to court. If the client owes you a large amount of money and does not
respond to any of your correspondence, this may be your last resort. If you include the
correct language in your contract, it may be possible that you can sue the client in your
home state, regardless of the client's residence. The threat of court is usually a strong one
and some delinquent clients will pay immediately. Others will want to endure the court
process. This is where your contract and records of communication with the client will
come in handy. Though expensive, it is in your favor to hire a lawyer.
With these measures in place, we hope that you will be able to collect on your unpaid
debts. Do you have a success story where you were able to collect money on a project
that you counted as lost? Do you have other collection techniques, not mentioned here,
that would be helpful to others reading this article? If so, leave a comment. Your
suggestion may be the one that helps another small business owner collect from a non-