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Business Law: 7 Steps to Minimizing Your Slow-Paying Client List
By Nina L. Kaufman, Esq
In today’s turbulent economy, a
slow-paying client can generate more anxiety and frustration for
your company than a no-paying client. At least with a no-pay, you
know what you need to do (sue) and the steps you need to take. Not
that you look forward to it, of course, but at least you know . . .
and that certainty can bring some relief.
A slow-paying client is like a
fickle lover: first prepared to abide by his (or her) commitments to
you; then dashing your hopes by standing you up for your romantic
rendezvous. Did you do something to upset him? Does he want to see
you again? Does he intend to leave you? When he needed you, he
called every day; now that you need him for something, he can’t be
reached. You want to believe the excuses he gives you . . . but
should you? Because we don’t know (and he’s certainly not being
communicative), we can be thrown into a state of panic from the
uncertainty.
Thankfully, clients differ from
lovers in one significant way: you can put your foot down and set
your ground rules for working with you from the outset. By following
these 7 preventive steps, you can minimize the receivables from
slow-payers:
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Start with a written
agreement. Have a written contract with your clients that
spells out what you’ll do for them, what you expect to get paid,
and when. Include a “stop work” clause if you provide services
or ship products on an ongoing basis. Better yet, include
penalties for lateness. Your clients should know up front that
you will charge interest and/or late fees if they don’t pay on
time. Yes, times are tough, but it’s not your responsibility to
provide them with interest-free loans.
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Send invoices right away.
Invoices get paid more timely when the value of the work you’ve
done is fresh in your client’s mind. Not six months later when
you’re a distant memory. In some situations, you may want to
send your invoice at the beginning of the month (in advance of
providing services), rather than after you’ve done the work or
shipped the product.
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Implement an “upcoming
reminder” system. Companies used to follow up with clients
at 30 days, 60 days, and 90 days. In this economy, don’t wait.
You can call or send a friendly reminder at Day 15, thanking
them for their business and checking on their satisfaction with
your product or service. Ask if you can expect payment by the
due date. Let them know you’ll be in touch if you haven’t heard
from them on Day 30 – and don’t just say it. Do it.
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Tackle receivables
immediately once the deadline has passed. Once clients have
passed your deadline without payment, give them a call within 48
hours to one week. The more (and sooner) you’re in front of
clients to get paid, the less they can ignore you.
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Enlist help from others.
Paradoxically, money can be one of the most uncomfortable
subjects for entrepreneurs (especially women business owners) to
discuss with their clients. If this is not your strong suit,
have an assistant or other friend/relative who can act in a
professional manner make the calls for you. With greater
emotional distance from the situation, they will have greater
ease confronting this potentially awkward situation.
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Consider alternative
payment arrangements. If you can’t get a check for 100%
right now, think about the alternatives. Although credit card
payments will cost you the processing fees, they may provide
breathing room that some of your clients need if they’re looking
for a “float.” Offer to work out a payment schedule (this can be
a good time to introduce interest payments, if you haven’t done
so already). Some customers may appreciate discounts for
invoices paid before the due date – but be sure they don’t take
the discount and pay you late.
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Keep detailed notes on
promises made and agreements reached with your clients. If
you contact a client on Day 31 who promises you that “the check
will be in the mail once the bookkeeper comes in next Friday,”
check with the client on the following Monday to confirm the
amount of the check and the check number. Send written
confirmation to the client of what she promised to do. The more
details you have on record, the harder it is for clients to
wiggle out of their previous promises. (And the better the paper
trail you’ll have if you need to eventually sue).
Whatever you choose to do, create
a system that you can implement easily, monitor consistently, and
handle timely. That way, you’ll be sure to avoid the agony of the
slow-paying client.
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© 2004-2010 The Legal Edge LLC. Nina L.
Kaufman, Esq. is an award-winning business attorney, author,
and speaker. Under her Ask The Business Lawyer umbrella,
Nina offers easy-to-understand business law resources that
protect small businesses and save them money. To learn more,
and receive our FREE "LexAppeal" ezine, visit
http://www.GreatBusinessLawTips.com or contact
Contact Us. This article is for your
general information only. Be sure to consult with an
attorney regarding your particular situation to make sure
you get the specific advice you need. |
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Nina Kaufman, Esq.
Award Winning Business Lawyer, Author & Speaker |
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