5 Tips For Surviving Non-Paying Customers

Ensuring clients pay on time is essential for businesses to stay afloat. A company that receives payments by a set due date will have more financial stability than one that doesn't. This is because prompt payments can help businesses manage their money, make essential payments, and plan for the next month. When payments aren't made on time, everything gets pushed back. A business may struggle to pay suppliers or partners, leading to all sorts of financial issues. 

So, what solutions can be adopted to avoid this? This is an issue many companies face - particularly small ones.

1. Use contracts

Regardless of who the client is, there should always be a contract in place that lays down the terms and conditions of service. Even if they're a returning customer, businesses need contracts as a safety net if something goes wrong. Effectively, a contract will outline payment terms, including when money needs to be paid, how much should be paid, and so on. 

As a result, you should have everything down in writing. A company could create a contract for a client that contains clauses such as:

• 40% deposit requirement, followed by the remaining 60% upon completion of the project

• The client must pay the full amount within 30 days after the completion date

• An outline of what work you'll complete and an agreement on what is considered 'completion.'

Finally, you should round off the contract by detailing a late payment policy. This is extremely important as it tells the client what will happen if they do not pay on time. Without a late payment policy, the client has no incentive to make payments on time. 

Should a client fail to meet the payment deadline, you could easily take legal action to demand they pay you along with any extra fees outlined in your policy. 

2. Use invoice financing

This is a solution for instances where a business desperately needs the funds tied up in invoices. A company may have dozens of invoices sent out waiting to be fulfilled. 

Invoice finance is a way of getting access to quick cash. The organization can essentially borrow money from a lender based on clients' funds. 

Is it a long-term solution to stop non-paying clients? No, but it will help businesses find a sense of financial stability while waiting to be paid. This can be extremely useful in scenarios where a legal battle will get a client to pay what they owe. These battles and cases can go on for much longer than you'd like, so having an influx of instantly usable cash is a big bonus for any company. 

3. Offer incentives to pay early

Often, clients don't pay on time because they don't see it as a priority. You have to remember that businesses work with all sorts of clients. For instance, in a B2B setting, a client is another business. Thus, they will have lots on their plate - potentially seeing other tasks as more important to deal with. 

Consequently, one way of getting around this is by making the payment a priority for the client. How do you do this? Well, you can give them an incentive to pay early. For example, offer discounts on the final fee if they pay a certain amount of time before the due date. Some businesses will have systems where there's a discount for paying within a specific date, and then the discount decreases the closer it gets to the deadline. After the deadline, if money still hasn't been paid, you can reverse the discount and add interest that progressively gets larger. 

4. Send out reminders

One of the most overlooked solutions to non-payments is sending out reminders to clients. Many companies are perhaps guilty of sending an invoice and leaving it at that. 

In most cases, businesses give clients 30 days to make payment. Using this period as an example, you could send a reminder after 15 days if no payment has been sent. It should be a friendly little reminder to let the client know that they only have 15 days until the deadline. 

By sending a reminder, you are doing the client a favour. It's a way of letting them know that money needs to be paid so they don't accidentally forget and end up getting charged extra. 

5. Choose your clients wisely

This final tip is perhaps the most controversial one, yet also the most effective. Many businesses end up with invoicing issues and non-payments because of the clients they choose to work with. Beggars can't be choosers, so it seems harsh to suggest that you sort through prospective clients. If you need to make money, surely you should work with every client that comes through the door?

How can you be confident your clients will pay on time? You can start making credit checks mandatory for all of your clients or perhaps demand some evidence. This could be a bank statement, proof of address - anything that gives you confidence in a client. At the very least, this will help you know the clients to avoid.

A business can't function if it doesn't get a steady income stream. When clients refuse to pay - or delay payment - the income stream starts drying up. Dealing with non-paying customers should be a top priority.