Getting your Customers to Pay-Up: Part 1
Getting your Customers to Pay-Up: Part 1
Tips for Protecting Yourself from Non-Paying Clients
Tips for Protecting Yourself from Non-Paying Clients
by Caron Beesley
As sure as eggs are eggs every business owner can expect to
deal with a non-paying or slow-paying customer at least once in their business lives.
The trouble is that many of us, eager for new business and income, overlook the
fact that it invariably will happen to us.
For freelancers or independent contractors, having to deal
with a non-paying client can be particularly challenging. "Good faith"
or loosely structured scope-of-work agreements are a common way for freelancers
to engage in business.
However, these are easily subject to abuse and provide
little legal recourse when your client doesn't pay-up on time. Likewise small
business providers of project based services, which could include anything from
accounting services to handyman services, are equally vulnerable to non-paying
clients. And without the advantage of a professional in-house collections
department, the cash flow implications and task of collecting debt falls
squarely on the shoulders of the business owner.
So if you are starting a business or have been in business
for a while and have had enough of dealing with late- and non-paying clients,
here are some tips for preventing and handling this troublesome issue.
Before You Agree to
any Work - Develop a Payment Policy and Discuss it with Your Client
Consider developing a part-payment policy for project-based
services. A professional and serious client should not mind paying half upfront
(before any work is done) and the remainder on completion of the work. If they
quibble, you have room to negotiate the percentage, but try to secure 50
percent of your fee upfront if you can. Invoicing terms should also be agreed
in advance. If your client is a consumer, be aggressive with your final payment
terms - 7-10 days upon receipt of invoice is normal. For business clients
(B2B), the industry standard these days is 30 days, but many companies can
deliver within 15 days, particularly the nimbler smaller business clients, so
don't be afraid to ask and negotiate.
If you are lucky enough to win a "retainer-based
contract" with a customer - i.e. you set-aside an agreed upon amount of
hours each month at a flat fee, usually on a use-it-or-lose-it basis you may
want to offer a discount off your hourly rate. Retainers tend to be easier for
freelancers and small businesses to handle and the work is often more
predictable in nature than one-off jobs. In addition, the usual business admin
tasks such as proposal writing are eliminated. If your client doesn't use the
hours, the retainer agreement should stipulate that they still pay for those
hours, although you may want to be flexible considering that the hours used
often even out over time.
Consider a Late
Payment Fee
If you choose to implement this "incentive" to
payment, be sure to state it clearly in your contract or payment policy before
doing any work (the law actually requires this in order to avoid violation of
the Truth-in-Lending Act). Typically, late fees are a percentage of the total
bill (usually 2 percent). If you feel the need to fall back on this when late
payment occurs, let your client know that you are moving forward with this
practice.
Also be aware that interest charged on late payments may be
subject to state usury laws limiting the amount of interest that can be
charged. If the maximum amount of interest is exceeded, the debt may be
forfeited and a penalty assessed.
Check what laws apply within your state.
----
Look out for part two in this series, which will outline
options your small business might consider for collecting or pursuing client
debt.
About the Author
Caron Beesley is a small business owner, a writer, and
marketing communications consultant. Caron works with the SBA.gov team to
promote essential government resources that help entrepreneurs and small
business owners start-up, grow and succeed.
This article was quoted from sba.gov.
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