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How can one force a customer to pay outstanding debts without ruining the relationship?
We continously have to deal with delayed payments form oue web and software solutions clients. Once we take the downpayment and complete the job, the remaining debt takes long causing us cash flow problems. As a start up, we bend backwards for our customers to maintain a good rapport and increase referral chances.
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4 Answers
When I saw the question, without your additional information, my initial response was "What relationship? Your customer ruined it by not paying."
But now that I see that you're collecting upon completion, here are some things I've seen done:
(1) Break up into 3 or more payments so that the final payment you're waiting for isn't as big. Agree contractually upon milestones and payment amounts. If you've reached the milestone and the work isn't completed, then you stop.
(2) The payments don't need to be equal. In construction, it's customary to hold back 10% until the customer agrees that everything is done. It is a lot easier to wait for 10% then 50%.
(3) Insist on credit card payments. Most every business owner has a credit card and that way you can just charge when the job is done. (Make sure your contract says you can do that so that if there is a dispute, you can clear it)
(4) Give a discount for payment up front.
(5) Put all your effort into collecting early. If you wait 30 days +, your chances of collection go down.
(6) When you (or better yet someone who is not the client contact) contacts them, get a promise of something. "I can pay $500 on Thurs.." Then hold them to the promise.
(7) Don't relay on mail or email of bills. Make phone calls.
(8) Set up the expectation of payment before you complete the job. ie.... We will be completed on Fri. Can I swing by and pick up the check on Fri afternoon?
My final comment is you can go fishing and not get paid... It's sometimes hard for a service provider to move out of the position of wanting to solve problems and get 'tough' with a customer to make them meet their obligations.
Diane gave a great answer for the overall issue - I'd like to address a phrase - "we bend over backwards for our clients".
I am guessing that means as the client says things like "can you also..." You say "yes". You know that means you are gifting them with work that was not in the original contract and increasing the value delivered without increasing the billing to the client, but does your client know that?
As a business owner you are in charge of deciding what you want to gift and what you need to charge for as an add-on to the original project AND you need to communicate clearly to your client what value you are gifting or what the add-on will cost so they can decide if they want to pay extra for it.
One of my earliest clients signed my contact which included language about "any additional work requested beyond the original scope of work listed would be considered an add-on and billed at xx rate." Several times during our work she asked if I could ... and I replied "yes" without also saying it would be add-on and cost XX more because I had the signed contract and I felt it was covered.
When I billed my client for the original contract plus the list of add-ons, she was not happy. I was new in business - the money mattered. I spent a sleepless weekend grinding my guts about what to do. I had a contract -I had done the work and I deserved to paid - I needed to be paid. But, I also had to acknowledge to myself that I was responsible for not communicating the cost of the add-ons and therefore deprived my client of her choice to decide yes or no for the extras. I wrote the entire amount off and it was painful but it was also a quickly learned lesson - know one likes ugly surprises.
The good news was that relationship was intact and a year later she rehired me on a new, bigger project. The other good news is I have been diligent about letting clients know when I am gifting them extra work - it shows up as a line item on the invoice including the $ value - and I take the time to communicate the cost of add-on work so the client decides and signs for the extra work. No ugly surprises for anyone.
If you are feeling put upon because you bend over backwards you might feel less so if you communicate the extra value to your client and it might also strengthen the relationship and get you paid sooner.
Hi Titus,
This is a great question. Focus Experts recently discussed this topic in depth on another discussion thread. We condensed the best advice from that discussion into an Experts' Briefing which can be accessed here:
http://www.focus.com/research/finance/focus-experts-briefing-how-smbs-can-get...
I am constantly amused by credit problems that companies have and how easy it is to rush into doing business with a potential customer without knowing more about them.
Credit information can be had in various ways including having the prospect fill out a credit application with financial statements, checking trade and bank references, checking out credit reports from D&B and the like. If you have not learned about your customer's payment habits, why would you be surprised if they are slow pay or don't pay. They may have used established vendors but came to you because they used up their credit elsewhere.
So don't provide credit to anyone unless you can find others that have provided high credit amounts that exceed what you are asked to supply and references indicate that they pay promptly. If references indicate problems, you can expect them as well.
Once you have qualified the customer, I believe that Diane's comments above are quite useful.
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