Non payers are an unavoidable liability for most small businesses and can cause serious cash flow problems. Often, small business owners are baffled when facing the issue of non payment - particularly is the customer is a repeat offender or the money owned is a considerable amount.
How do you deal with non-payers in your business?
1. Require payment or partial payment up front for products or services
A customer can’t take their groceries home without paying, so why should your clients receive service before payment. By doing this, providing products or services with an invoice period, you essentially become a creditor. In fact, you're doing clients a favour by giving them something prior to them compensating you. It's a fair trade to require an initial minimum deposit and also reduces the risk of non-payment.
2. Avoid doing business with large companies
Large corporations can be guilty of pushing down rates, trapping you into long term contracts, treating you poorly and ultimately failing to pay on time. In short, it is difficult to negotiate with businesses on completely different footing. Often size equals leverage so it's in your best interest to conduct business with similarly sized companies. The only exception should be if a larger business can offer you something unique.
3. Don’t do too much business with one company
In other words - don't put all your eggs in one basket. Ensure you always have a Plan B in case something ever goes wrong with products or projects. Understandably, it can be difficult to avoid exclusive deals - with either clients or suppliers - when you're just starting out: a contract loss could mean the end. But having something or someone else up your sleeve at all times, is always worthwhile.
4. Understand contracts.
Unless you're a considerably sized business - think Telstra - having complex contracts drafter can result in an unnecessary expense. Instead, try an engagement letter. It outlines the expectations for each party through the duration of a project. Professional Indemnity Insurance is something else to consider, in case clients try to take a piece out of you.
5. It doesn’t hurt to be honest with a client about the impact of non-payment.
For consistent cash flow, it is vital that you have reliable payments for your products or services. Remind clients that while their business is valuable to you, working with them may not be possible soon if you don't receive payment. Putting in place a policy where services and products will only be provided once the previous invoice has been paid, may be beneficial.
6. Factor non-payment into your rate
hopefully, this will come to no more than 2% of your total gross sales. Over the course of a financial year, most small businesses have to write off some projects as debts. Your planning needs to take this into account.
Usually, if a client has paid a few times, you will not have trouble with them paying in the future. However, this is not always the case. Be consistent with chasing your debtors, no matter who they are. Yes, it takes time — but this is another reason to factor non-payment into your rates.
7. Be nice to people
Be the better person. While being aggressive and pushy to a client who owes you money may be tempting, it only worsens the situation and may come back to bite you later on. Running a business involves gambling with people - sometime you lose and the best option is to walk away graciously.
We all hope our business will expand to a point where we can pick and choose only supportive and attentive customers for our client base. However, trying to cull your clients early on will leave you with too few. Then, if one or two good clients leave - you're out of work.
Keep in mind your options and values whenever you take on a new client or project.
Will it be worth it?
While developing the skills of assertiveness and negotiation are crucial in dealing with non payers, learning when to let go is just as important.
Be flexible: respond to and minimise problems, but know when to walk away when it's not worth it.