There’s no denying that running a business is demanding. Small business owners are honestly the real MVPs doing the most day after day. While overseeing everything from accounting, HR, and IT to sales and personalized marketing strategy, they work to ensure sustained growth.
There are loads of business management software options that can help you to streamline key areas, but even the smartest of solutions will be unable to control the actions of customers. Needless to say, handling unpaid or late invoices should not be on your ever-expanding lists of tasks.
But as much as we might try to avoid it, one thing’s for sure. There’s always some client who tries to avoid making their payments or postpones as much as humanly possible. It’s frustratingly one of the most common financial problems faced by SMBs.
Handling these cases can turn into a messy job. Unpaid invoices or late payments can have a severe impact on business. They’re reason enough to push business owners into bad debt, damage cash flow, and cost huge amounts of invaluable time.
There are plenty of reasons why some clients look for ways to avoid paying for services. The reasons range from lost bills to unexpected costs that set them back.
Luckily, we have a few tips on how to deal with unpaying or late-paying clients, which can help you keep your business on solid footing. But first, let’s have a brief look at how unpaid and late invoices damage a business.
How having non-paying clients affect your small business
As I said before, unpaid invoices have a severe (negative) impact on businesses. According to research, because of unpaid and late invoices, almost 80 percent of small business owners can’t pay themselves. What’s more, over 20 percent of them can’t afford to hire new employees.
Further, more than 20 percent of employees are unable to invest in new equipment. And an equal percentage of them hold back on giving pay increases and bonuses due to unpaid and late invoices.
The same research shows shocking data that SMBs across the United States could hire more than two million employees. This would reduce unemployment by 27 percent if they were paid for their services on time.
The bottom line, when they’re not paid on time, businesses cannot grow. They cannot afford to take a new project, hire new people, and they’re less competitive in the market. To prevent this scenario from happening to you, I wanted to share some tips on how I’ve dealt with non-paying clients successfully.
1. Set things straight from the beginning
To avoid any confusion about the payments and putting your business at risk, make sure you have a solid contract with your client. The contract should strictly define your services, terms, and conditions. Make sure to include the date when the invoice is due and communicate this information clearly.
However, with some clients, even the agreed terms don’t work, and they will try to prolong the payments as late as they can. To avoid this scenario from happening, you can have a predetermined payment plan, such as:
- Requiring a deposit
- Ensuring there are milestone payments
- Determining when the invoice is due. It can be either 30, 60, and in some cases, 90 days from receiving the invoice
- Including late payment policy, charged fees for late payments
It’s crucial to set a clear contract straight from the beginning because it creates accountability. Plus, if clients know they will be penalized for late payments, they will be more likely to pay the invoices on time.
2. Ask for a favor
Numerous studies suggest that doing favors makes us like the person we’re doing favors for. When we help people, we rationalize this feeling. We need a reason why we’re doing a good deed, and usually, people we’re providing favors to are worthy of our time and attention.
Asking a client to give you a useful review, write you a testimonial, or praising you on social networks is a small favor to ask. But building outstanding feedback loops is a top customer success best practice. Not to mention, this act will make clients less likely to deny your payment.
In the end, how could they let you down if they appreciate your business so much?
3. Spot “freeloaders” early on
A “freeloader” is a common term for clients who repeatedly complain and look for faults on purpose, so they can decrease the value of your work, or avoid paying for the service, while still obtaining a valuable contribution on your part.
Freeloaders are everywhere actively preventing you from getting your finances in order. There are the ones who complain about the price of your service, constantly trying to decrease the value of work. They can be found disguised as a fake perfectionist who constantly has something to complain about and who refuse to pay until everything is sorted. And there are the ones who are simply “too busy” to pay for your services.
Dealing with that kind of client is never a good decision. Depending on the line of business you’re in, instead of losing your time, money, and nerves on dealing with them, learn how to recognize them early on. You choose with whom you’ll work, and freeloaders shouldn’t be on that list.
4. Offer prepaid discounts
Another good way to avoid late payments and non-paying clients is to set an early payment discount. This means clients will actually pay for the service before the project begins. Prepaid offers can be either fixed or a percentage of the total project.
They are an amazing way to begin a long-term relationship with clients. This is because they save money for both parties, and enable you to have peace of mind while doing what you do the best.
5. Send a friendly reminder to non-paying clients
Late payments always bring along another, equally unpleasant problem. It’s always the struggle on how to ask clients to pay the services, without endangering your relationship or sounding rude. People tend to get so consumed in their problems and forget another person is waiting, affected by their behavior.
This is where automation of essential business processes has the ability to save the day. To avoid late payments, automated invoicing is the key to enhanced productivity. For example, InvoiceBerry has a fantastic feature that lets you send a thoughtfully worded reminder with the click of a button.
This ensures you never miss on a payment, save time, and focus on more meaningful work. With invoicing software, you’ll be able to keep an eye on things more efficiently, decrease paperwork piling up on your desk, and focus on scaling your business.
To wrap things up
Chasing late payments and non-paying customers, unfortunately, comes with the territory of running a business. This is why it’s best to cover all of your bases with a solid contract from day one.
You can also minimize the potential for any payment related issues by really connecting and giving your clients an emotional/ rational push to provide a review. Early-bird discounts, kind reminders and simply getting good at intuiting who you should and shouldn’t work with can additionally save a lot of grief.
Though there might still be some disreputable clients who slip through the cracks and avoid payments on purpose, do all you can to keep them at bay while forging ahead and continuing to grow alongside your prized client base.
Uwe Dreissigacker is the founder of online invoicing software InvoiceBerry & also offers free invoice templates to businesses. Small businesses and sole traders can create, send, and manage their invoices, quotes and credit notes with the tool. In his free time, Uwe travels the world and enjoys experiencing different cultures.