You’ve done your job and haven’t been paid. Chasing unpaid invoices is time-consuming and frustrating – what’s a small business owner to do?
Fear not. Business expert Elizabeth Potts Weinstein discusses steps to protect yourself and highlights strategies to mitigate your risk.
MEET YOUR CLIENTS IN PERSON – If it’s possible, try and have a face-to-face meeting with your clients. Not only does this personalize your business, it helps build a rapport and creates the opportunity to solidify plans and clarify expectations.
TRUST YOUR INSTINCTS – Often, when entrepreneurs haven’t been paid, they’ll say there were warning signs early on.
“Listen to your intuition,” says Potts Weinstein. “You meet a client during an initial consultation and it’s sometimes hard to put your finger on it, but you know they are murky.”
If they’re flaking on commitments, being indirect or not answering the phone, don’t be afraid to refuse the business.
DON’T COMPROMISE – This is one of the toughest rules to follow, especially in this precarious economic climate:
“A lot of times in business, we are so desperate that we compromise by taking anybody willing to pay us, even if they aren’t compatible.”
But if there are red flags, warning signs, or just a gut feeling this not going to be fruitful, walk away.
GET IT IN WRITING – Yes, this may sound like Business 101, but it’s surprising how many people don’t have agreements written down.
“Obviously a formal contract is best, but if you’re not there yet, at least get a confirmation email,” says Potts Weinstein.
When you have things written down, even in an email, it acts as a safety net and clarifies expectations. Everyone knows their specific tasks, and what is and isn’t included.
Sometimes, clients aren’t paying because expectations weren’t clear. The client may be waiting for more work, feel unsatisfied with the work that has been done or just not understand the expectations.
“It’s never too late to sit down and write things out,” says Potts Weinstein. “Be clear. Outline a payment schedule line by line and ask the client to respond to the email to clarify understanding.”
GET PAID SOONER RATHER THAN LATER – Get a deposit – “you want them to have skin in the game” says Potts Weinstein.
An initial deposit is an investment. Also, it pays you at least once and gives you more confidence that the client will make good on future payments.
MAKE IT EASY FOR YOUR CLIENTS TO PAY – PayPal, email money transfers, credit cards – the easier it is for them, the easier it will be for you.
DON’T JUMP TO CONCLUSIONS – Sometimes the check really does get lost in the mail. Laugh all you want, but it has happened. Non-payment isn’t always intentional; it’s possible the client is overwhelmed, overworked, or simply forgot.
Give your client the benefit of the doubt. Be reasonable and don’t overreact. Sometimes it’s a sincere misunderstanding.
DON’T MAKE IT PUBLIC – In the age of social networking, be careful about the ramifications of lambasting others on social media sites. Clients and business owners have been known to vent and complain, or try to collect money in inappropriate ways. People tend to be bolder online, saying things they would never in person. Take heed – it can come back to bite you and jeopardize your reputation.
SPEAK DIRECTLY WITH YOUR CLIENTS –Picking up the phone and speaking with your client directly may go a long way towards mending some fences and getting the matter resolved.
If worse comes to worst, there are collection options, although it depends on the situation and amount of money in question. In order to collect, it’s either going to cost time, money, or both.
As Potts Weinstein points out, it largely depends where your clients are located: if you’re in the same town, small claims court may be worth your time. Generally, lawsuits must be filed where the client lives. In a different state, province, or country, the costs likely won’t make sense unless they owe you thousands and thousands of dollars.
Unleash the hounds – what do collection agencies actually do?
Before you consider using a collection agency, keep in mind you will take a loss on the total amount owing.
Turning the debt over to a collection agency means you will not have to spend your time actively pursuing payment. You need to decide whether it’s worth selling it at a loss and recovering a portion of the debt. Of course, it depends on the amount outstanding, but in general, most business owners feel it is not worth the time or energy—or the risk to their reputation—to pursue it aggressively.
2 Comments
Great article! I have worked with a small natural foods company where cash flow was tight and our A/R was enormous. We assumed we would be paid on time, but some of our time was strictly devoted to following up with our current clients requesting payment. I am now in a similar situation being a self employed mortgage associate. You can imagine trying to squeeze money out of the banks though.
Fantastic advice for dealing with what can be a tricky issue, but so important. One other simple thing that can make a huge difference is actually having payment terms on your invoice. I know it sounds obvious but I have seen many invoices without payment terms, and it signals to the person paying the bills to pay when they feel like it – not the best for your cashflow. Sending out statements regualrly can also keep your invoices “front of mind”. Often invoices don't get printed, people forget to enter etc, it happens all the time. A statement can be a “reminder” that you are owed money.