Collecting unpaid bills from your regular customers or vendors can be very tricky. Demanding for unpaid bills and yet continuing to maintain a business-friendly relationship requires a well thought out diplomatic approach. This is a pretty long article and it may appear that we are at times going off the topic, but continue to read as we are simply doing this to present our point of view to you.
Soft approach vs. a firm approach, which works better?
Well, it all depends from person to person. A general rule is – Do not try to be extremely personal or soft with the client only to be taken for granted. Similarly do not interact too firmly or appear indifferent to their problems, this may irritate the client and he may intentionally delay your payment even further.
1. Has this happened for the first time:
There is a fair amount of possibility that the delay is due to an oversight, glitch or temporary circumstances. For example, an officer who issues check could be on leave, a non-serious cash flow crunch in the client’s company that is temporary in nature or may be the client never received your invoice or lost it by mistake. Politely send another “reminder” invoice by “certified” mail, keep a copy for your records. You should also make a phone call the day after the client receives your “reminder” invoice. Say something like this .. “Sir, may be you did not get our invoice last time, therefore we have re-sent it.“, then carefully listen to what the client has to say.
Client will likely give you the reason of non-payment without you even asking for an explanation, or they may simply tell you that the payment will be issued today or tomorrow. If the client appears to be deferring the payment or giving false excuses, take it as a big red flag. Keep this account under watch. If the payment does not get issued soon, you will need to take this to the next level.
Your staff should also be informed in advance to be extremely careful while communicating with those clients who you want to keep long term business relationship. They cannot treat these clients in the same way as they treat other non-paying debtors.
2. Has the client started to repeatedly delay payments?
There is likely a bigger problem brewing at your client side. May be the clients own business is not doing too well. Politely ask “Sir, we have been doing business with you for X number of years and getting payments was never much of a concern earlier, would you mind sharing with us what has changed recently?“.
I always believe that apart from insisting clients, do tell them that you are also facing problems because of non-payment. It could be even as simple as this “Sir, since your payments have been delayed, it has created some cash flow problems for us as well. We run our business on thin margins. I request you to clear our bills at the earliest“. Showing your problem will convey client that its not just your willingness to get the funds transferred fast, but there is a compelling business need too.
3. Do you have a better alternative
If getting paid for your products or services has become an ongoing problem, start looking out for other business partner / suppliers who do not have a cash flow problem. If doing business with them has become too risky, may be its the time to cut the cord.
4. Do you know the reason behind these non-payments
Ask politely “Sir, may I know the reason for delay in making payments?”. Although you can never be sure if the reason given by your client is true or not. Keep notes of what client says during each call. Be mentally prepared for all kinds of excuses. Be patient and listen to your client, they will likely tell you when they will be able to pay before the call ends.
5. Show faith in your client. It helps.
“Sir, we have been doing business together for a while, we have great trust in their organization“. Call it “moral faith” or “moral pressure“, but it works. Create a good relationship so they will want to pay you first because there may be other parties like you who are also waiting to get paid.
6. Control your anger
Speak less and to the point. Be a good listener. Regardless of the circumstances, never sound harassing, never try to threat your client or lose your temper. It can result in a counter legal action against you.
7. Give them option to pay in installments
Has it been over 3-4 weeks past the payment due date and the reminder invoices have not worked? Now try giving your client an option to pay in installments.
**** Facing serious issues collecting your money .. now what ? ***
7. Can the situation still be resolved amicably
Lets say, the Client has failed to make payment on the recommitted date too. He is avoiding taking your phone calls, needs even more time to clear your payment, has started to unreasonably dispute your services or other excuses which clearly indicates that you are not going to recover your money easily. These things indicate that the line of an amicable solution has likely been crossed.
8. Have you waited too long?
Approach a collection agency or a collections law firm if it has been between 50 days to 60 days since your payment was due. They will likely take an action after 60 days. Statistics prove that longer you wait, harder it becomes to recover that amount. Involvement of a professional collection agency automatically puts additional pressure on the client, plus good agencies have many legal ways to collect money which you may not know. Most commercial collection agencies will not charge you anything till your money is collected. Depending on the amount owed and circumstances, collection agencies charge typically between 20% to 50% of the amount they are able to collect. Fully understand the fee structure before selecting your collection agency / law firm.
9. Maintain proper proof of the services/products delivered and communications thereafter.
Keep all invoices, proof of goods or services delivered and copy of reminder invoices sent by you to the client. Also keep a copy of communications done via email and date/time of phone calls made by you to your client and what they told you.
10. Take legal action.
Depending on your situation your collection agency or law firm will advice you if filing a lawsuit is advisable or if they want to try to solve the situation amicably in their own way..
Obviously, there is no guarantee that your business relationship with the client will remain intact, but a step by step approach will increase the chances of resolving things in a nice way.