Every business runs into deadbeat customers. Here's how to make sure they don't take advantage of you.
No one likes doing work and not being paid for it. Yet let's face it: We business owners know it happens all the time. RocketLawyer.com recently released a survey of 475 members of its website: 25 percent had trouble collecting payments, and of those, 60 percent had to write off bad debt. As a bonus, the survey release included Rocket Lawyer's tips for getting paid. I thought they were worth passing on:
1. Perform a background check.
Check the client and make sure they have good credit. If you can't afford the credit check services or if you're not sure about the client's ability to pay, get a portion of the project up front before you start.
2. Create and sign a contract.
A contract not only protects you, but it protects the customer as well. A contract should spell out deliverables the client will get as well as the payments the client will make to you, along with a schedule. According to Vito Mazza, Senior Consultant at GreenFlag Profit Recovery, "In the current environment, people should start considering 20-day terms for payment instead of the standard 30 days."
3. Bill customers consistently.
Bill on a schedule that keeps them from "forgetting" they owe you a payment. In the survey, more than 35 percent of businesses had one customer that was more than 90 days delinquent. The survey also reports that only 29 percent of businesses call customers when they're late. "Regular contact is critical," says Mazza. "Most people wait too long to get started asking for money. They don't get paid after 30 days, so they wait until 60 days and send a note, then 90 days they send another note." One of Mazza's services includes what he calls "first contact courtesy notices" which go out after a client misses the 30-day deadline. Those are followed by an automated call that allows the debtor to press one and speak with you (and not GreenFlag.) "It gives a big company feel for a small business."
4. Have your attorney send a letter.
When I recently ran into a deadbeat in my business, my attorney chose a "take no prisoners" approach that listed possible legal actions that would arise should the client fail to respond by a certain date. This did the trick. Remember, though: This gambit may be too strong in some cases. You have to weigh such "motivational" tactics against the circumstances of the late payment and the nature of your relationship with the client.
5. Send them to collections.
If you still can't get the customer to move, find a reputable debt-collection agency. You may give up a percentage of the money owed, or pay a flat fee, but you'll likely get something and you'll stop wasting your time on a deadbeat. If you work with a debt recovery firm the industry claims a 12 to 14 percent recovery rate. Mazza claims his strategy recovers 50 percent and costs are fixed at roughly $12 to $14 per file. GreenFlag works with many medical offices and even the Girl Scouts.
Don't let customers take advantage of you by making you wait for your cash. Share your tips on collecting on time in the comments below.