For any business anywhere, it can be harmful to cash flow when customers do not pay their bill. While some customers may pay all invoices at one time down the line, others may refuse point blank.
What options do you have when a client or customer will not pay their invoices? In this post we will look at some of the options that are available to you to as a business to claim money owed to you for services or products.
Lets look at some of the main ways to protect your business from customers not paying their bills:
Make a contract
It is best practice to create a contract if you are a B2B company and starting work with a client. The contract will state the deliverables and the cost of delivering those deliverables. Should the client not pay up after you have done exactly what was outlined in the contract, you can enforce legal action on that client.
Without a contract, you do not have proof of what was agreed and what was not agreed.
Hire a debt collection Solicitor
If you have outstanding invoices that have not been paid to you, it is best that you hire a debt collection solicitor for your business. One of the main issues that stifles small businesses is “Aged Debt”. Aged debt can be defined as debt which in effect has been outstanding for 90 days or more. With aged debt, your best option is to hire a solicitor who will:
1 – Send letter of demand
2 – Serve legal proceedings
3 – Enforce secured judgement
Payment up front
Asking for payment up front is the best form of payment from a security point of view. This does not always suit the client. It is best practice especially if you are engaging in a large project, where time and resources is going to be high.
For new clients it might work as an incentive if you offer 10% off their second order if they pay up front for your products/services.
Charge late fees
Late fees should be something that small businesses should have in their contracts. If you have a contract with your clients, you should have a section for late fees, where 5% will be added to the invoice if 15 /30 days after invoice has been sent out, it is not yet paid.
Factoring is an option where you have a lot of aged invoices that have not yet been paid. Factoring is essentially selling your invoices to a company for upfront payment. Usually the payment is for a percentage of the invoice value. You may find factoring companies that offer 60% – 75% payment on invoices. Factoring is an option where you need cash flow to keep the lights on in your business.