Indeed dealing with clients who choose not to pay for products or services delivered is all too common. Every business owner who has been in the game for any significant amount of time will deal with customers who simply refuse to pay. Often when you are a small business, such as an electrician, you provide services before taking payment which can create a number of issues with outstanding payments.
Note that the easiest way to avoid unpaid invoices is to take payment upfront. Asking for payment before or on the day work is done or products delivered is a foolproof way to avoid bad debts. With portable credit card facilities now available to most businesses these days, you can take payment by credit or debit card either on the phone or in person, avoiding any chance that you will not get paid.
But if you are expected to offer products and services on credit, then it is imperative you understand exactly who you are dealing with and that they have a good credit history.
Have it in mind that running a credit history check in Australia is now simple, fast, and affordable, with companies able to give you a full credit history report on a business or individual within the same day. This lets you avoid offering credit to people with a long history of unpaid debts.
You are also allowed to request business references as a way to determine if this is someone you can trust to do business with. Most times, business owners will avoid running a credit history check because they believe that all new business is good business. But if you are not careful you could get trapped in a huge loss.
It is always advisable not to loan thousands of dollars to a complete stranger without any guarantee of repayment, yet when you offer credit to a new customer this is exactly what you are doing. It is only when it is too late and you are thousands of dollars out of pocket that you understand the extreme risk of offering credit to unknown entities.
What are the Best Ways to Handle a Customer Refusing to Pay for Work Done?
There are some important things any business owner will be expected to do in order to collect payment from a customer refusing to pay for work done. They include;
Table of Content
Send Polite Reminders
If a client’s payment is overdue, the very first step should be to send a polite reminder email immediately after the due date. You can use a payment reminder email template to help you draft an email that is polite and professional, to grow your chances of getting paid.
You have to respectfully let the client know the invoice is now past due and include the payment due date. Also, remind them of the payment methods you accept and also outline any late fees that are included in your payment terms. Attach the original invoice to the email, for reference.
If the invoice remains unpaid after the due date and the friendly reminder email, you or your accounts department will have to call the clients and arrange for payment to be made. As with your email reminders, be polite and friendly when you call.
Ask what the issue is that is preventing you from receiving payment and try to work out a solution. If possible, secure payment over the phone by getting a credit card number. If not, get your client to agree to a specific date by which they will send your money.
Letter of Demand
If after sending mails and phone calls and nothing was done, then it is time to send a letter of demand. This is a final notice to the customer letting them know if payment is not made, the debt will be referred to a debt collection agency and possibly the courts, and that it may affect their credit rating in the future.
If the customer fails to respond to your letter of demand and payment is still not made, hiring a professional collection agency is the next logical step. Over the years, so many businesses have written off debts that were easily recoverable if they’d just gotten some professional help.
Have it in mind that quality debt collectors will save you time, money, and follow all the best practices and ethical standards to recover your debt, whilst maintaining the best possible relationship with your customer.
Top companies will even offer a “No Collection, No Fee” service so you only pay a percentage of the recovered funds as a debt collectors fee – and again if stated in your terms of trade that your customer will be liable for these fees. Note that if you have a customer that is refusing to pay you should not hesitate to call a debt recovery agency. They will be able to give you professional advice and give you the best chance of recovering the outstanding money.
Go Directly to the Payment Source
If your call to the client does not yield payment by the agreed upon deadline, try a different tactic by going directly to the client’s billing or finance team, instead of your day-to-day business contact. Take your time to find the contact information of the billing department and call them.
The billing department will have more information about the status of your invoice and whether there are any issues with it that are preventing them from paying. The billing department is also best equipped to give a realistic timeline for payment and push to get it sent to you quickly.
To collect money from clients who won’t pay their overdue invoices, it is advisable you start by following up with the client by email and phone or speaking directly to the company’s billing department. To better protect yourself from late payments in the future, consider requesting a deposit at the time you sign a contract for new work.
It is common practice to request a deposit from clients of 25 to 50 percent of the total value of the contract. You can also ask for payment for your work upfront before you start a project.
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