Every business has customers who can't or won't pay. But there are several ways you can deal with them.
Every time I talk to a group of business owners, sooner or later someone asks me about late- or non-payers. I've had only one of these in the last 10 years but I know that that has been more due to luck than good judgement.
So what should you do if you find that clients or customers regularly pay late--or that some don't pay at all?
1. Draw up a schedule of payments.
Break a project into milestones--however small--and ask for payment along the way. That gives you an opportunity to check that everyone is satisfied with progress, limits your financial exposure, and gives you more control over your cash flow. However scary it may feel, any problems are easier to fix earlier than later. Many customers prefer this too because, especially in complex projects, they feel more in control of costs they're incurring.
2. Ask for some payment up front.
Many young companies are reluctant to ask for up-front payment because they feel it makes them look, well, young. But if you are just starting out, be honest about it and get your customer's support. But also make the perfectly sound argument that you need their commitment (at least in part) if they are going to get yours. Many law firms ask for some payment up front; why shouldn't you? In very large deals, some companies prefer to put money into escrow accounts. Whichever method you use, the idea is the same: If you commit resources, so should your customers.
3. Offer a discount for up-front payment.
While I hate this option--I don't like to leave money on the table--it often has the advantage that it gives the people you are selling to a reason to pay upfront that they can defend back at their office. Many people also believe that this is stronger than simply demanding payment up front.
4. Do due diligence.
You can, of course, do credit checks on your customers but I find I get better information by asking friends or colleagues about people I am working with. When I get to know a new client, I'm always eager to find out who else he has worked with; that alone tells me a great deal. There's also usually somebody in my network who can vouch for him--or not.
5. Trust your instincts.
The only non-payer I had was one I thought would prove unable to pay my fees. The amount wasn't huge so I knew I was taking a risk and I could afford to. But I don't think the client was being dishonest; I think she imagined she could pay me. Had I asked for, say, 50 percent up front, she would have had to realize, far earlier, that her project was under-funded and didn't work. That would have been a big benefit to us both.