Solutions for Non-Paying Customers

Solutions for Non-Paying Customers

Solutions for Non-Paying Customers

Asking your clients to pay early, or at least submit deposits before work begins, is the simplest strategy to assist decrease cash flow risk. You can make a plan to waive this need, but the default should be to assume that new client work will demand upfront payment. If you feel you’re at risk of losing clients, you may want to consider offering alternative methods of financing.

Business-to-business and business-to-consumer companies alike might engage with a leasing company to help finance their clients. This increases the amount of friction in the sales process. The downside is that the leasing company may not be as urgent to close with a client as you are, creating delays and the risk of losing clients. It is important to vet your lender to ensure they are reliable.

Factoring is also an option. Factoring involves borrowing money against your unpaid invoices, with the expectation that the payments will eventually come in. If a payment is delayed or never paid, you are fully responsible for paying back the debt.

Offering financing options to your clients is often a necessary step in bringing in more business. It is a high-risk, high reward approach.

It’s important to tackle any issue with clients as soon as you recognize it, as it will only become more difficult to solve as time goes by. This is also why it is important to do your due diligence before working with a client who will not or cannot pay upfront. You need to do all the background research you can to make sure that you can rely on them paying down the line.

As with any high-risk, high reward approach, things will go wrong every so often. You are putting your faith in people by allowing your client to pay overtime or lending against what they owe. Unfortunately, people are not always reliable. You need to have a plan outlining what your next steps are if you don’t receive payment.

A plan may come in the form of a schedule, looking something like this:

  1. First Month – send out 2-3 payment reminders
  2. Day 30 (Due Date) – payment due notification
  3. One week after – Follow up with phone call reminders every few days
  4. Day 40 – Send out the bill in the mail
  5. Day 47 – Send out the firmly worded bill in the mail
  6. Day 52 – Final phone call reminder
  7. Day 54 – Send out a final payment reminder and advise that the bill will go to collections.
  8. Day 60 – Report to credit bureaus, send to outside collections partner.
  9. Sending a payment to collections

After sixty days, it is easy to feel as though you will never get your money. This is when you seek the help of a collection agency, that will help collect your debt. Be sure to go with an agency you trust, as you may be responsible for any of their actions. If the agency acts against regulations, you may face litigation.

When a debt goes to collections there are a few different outcomes. Either the client responds and wants to negotiate, hires a lawyer to negotiate, or claims the debt is invalid, or they will ignore you. If they ignore you, you can file a lawsuit. If your claim is deemed legitimate by a court, you may forcibly collect a debt along with legal fees.


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