How to Ensure Clients Pay Their Invoices – and What to Do if They Don’t

nonpaymentYour business operates on a contractual basis: You provide a service or product, and the client pays you. As small business owners know, getting paid isn’t a given. Clients may delay paying what they owe you for months at a time or skip out altogether, which will cause your business financial stress. After all, you have bills to pay, too.

Tracking down a client who doesn’t pay can be a more time consuming and expensive process for small business owners than for larger companies.

How do you get and keep customers while making sure they pay in full and on time? And what should you do if they don’t pay?

To give yourself the best chance at stacking your customer base with those who will pay on time, do some due diligence up-front, to set yourself up for success. Here’s how you can help proactively manage your risk, to get the right clients the first time.

It’s your worst nightmare: Your client is refusing to pay. Here’s what you can do    Tweet This

Business credit check

Start where the data is. Do a business credit check and get financial reports on the individual or organization from companies such as Dun & Bradstreet. Such information is comprehensive and unbiased and will help you understand and assess a prospective client’s past financial issues and current risk.

Get references

Contact references provided by the potential customer and ask them about late or nonpayment issues and the company’s communication about payment. If the prospective client doesn’t provide names, you can ask around in your small business community or professional organization.

You may find businesses you trust that can share a personal story about their experience. This may be a more honest assessment, but it’s just one perspective versus a compilation of data from a credit check.

Make payment terms clear

When you’ve decided to work with a client, in effect you’re extending them credit. Before you start, make sure you’ve made your payment terms clear. Talk about your payment terms in person or over the phone, followed by a written agreement signed by both parties. This written agreement can be used if there are payment questions later.

Payment terms

There are many ways to structure payment terms to make them flexible for you and the client. Some companies offer a discount for paying early or paying in full before the work is started or completed. Others require partial payment up front and staggered payments upon meeting certain milestones. This can manage your risk because if the client misses one payment, it’s less costly to you than losing the entire payment.

Some businesses also ask for a signed credit card authorization to be put on file, to use if a payment is over a certain amount or not paid by a certain time. Consider requiring final payment before you complete the project.

Bad credit

If a company’s credit or reputation is bad but you still want to work with it, make sure to protect yourself. Insist on complete payment before providing any goods or deliverables. You can also ask the company to make a cash deposit equal to the amount owed, which can be used in case the bill isn’t paid.

Sometimes you can do all the right things and a company still doesn’t pay you. Here’s what you can do next.

Follow up

Have a good invoice-tracking system and follow up on late payments immediately. Rather than just sending a “late notice” invoice, call the client to make sure the initial bill was received and processed. It’s common for invoices to be misplaced or get stuck in a stack to approve.

Develop a relationship

When checking with your contact, find out the appropriate person in the accounts payable department and develop a relationship. That way you have two contacts, including one who has a role in actually pushing your payment through and writing out the checks.

If the company is having difficulty making payments, it is more likely to pay someone who is on top of the invoicing process and calling frequently than an anonymous person who just sends bills through email and who may not notice or care about a late payment.

Payment plan

If the company is having legitimate financial issues, getting something is better than getting nothing. Work out a payment plan or offer to discount the total payment due if they pay by a certain date.

Threaten action

When drawing up a contract, make sure it specifies the actions you may take if payments are late, such as reporting the company to a business credit bureau, the Better Business Bureau, turning the account over to a collections agency or filing a lawsuit. This may burn a bridge with the client, but if they’re not paying you for services provided, this probably isn’t a client you want to work with in the future.

Chasing after money is one of the least pleasant parts of running a business. But you can help set your business up for success by checking a potential client’s risk and credit before you start your work. Contact a Credit Advisor at Dun & Bradstreet by calling 1-800-701-7168 to learn more about risk management tools that can help small businesses.

Photo Credit: RLTheis, Twenty20