Where to Turn When Customers Don’t Pay on Time

A payment delay can slow down your cash flow and make it difficult to keep with different expenses. Dealing with late payments and unpaid invoices is a source of stress and frustration. Reaching out to customers is time-consuming, and you might feel that smaller unpaid invoices are not worth your time.

There are strategies you can use to prevent late and unpaid invoices and solutions for dealing with non-paying customers.

Before You Start Working on an Order

It’s important to establish a positive relationship with potential clients. You should be transparent about your fee structure and invoicing terms. Take the time to discuss contract terms and answer questions.

Do some research on new clients. Find out if there are any outstanding Better Business Bureau complaints or negative news stories about them. A quick reputation check can reveal red flags.

Providing new clients with a detailed quote will help them plan for future expenses and make them less likely to fall behind on their payments. Clients should also be aware of any additional costs or fluctuating costs you could incur.

Establish some clear expectations for invoicing and payments. New clients should know when they can expect invoices from you, and when payments will be due.

You should also think about requesting a deposit or partial payment upfront. These practices will cover the initial costs of fulfilling an order if you have to purchase raw materials, and you will cut on your losses in the event that the client doesn’t pay.

Improving Your Invoicing Process

An effective invoicing process will speed up collections and could boost your collection rate. There are a few steps you can take to build a more effective invoicing process that delivers a better experience to your customers while helping you save time.

Automating repetitive tasks by investing in invoicing software will help you save time. You can use automation to process payments, send reminders for unpaid invoices, and issue recurring invoices.

You’ll need to rely on some sort of online accounting software so you can identify the invoices that require your attention.

Communicating with clients is important. You should talk to your clients to find out when you can expect payments from them and ask if they would prefer to pay you in one lump sum or smaller monthly payments.

Be consistent with your invoicing practices. You can help your clients plan for their expenses by sending your invoices on the same day every month. Offering safe and convenient payment options like credit card payments can improve your collection rate.

Document your entire invoicing process. Keep track of the payments received and not receiving. Documenting everything prevents mistakes and will come in handy if you need to take legal action for an unpaid invoice.

What to Do If a Client Won’t Pay

You can be proactive about non-payments and use late fees as a deterrent. Keep in mind that clients should be aware of this policy when you sign a contract with them.

If an invoice is late, the best thing to do is reach out to the client. Establishing communication shows good faith and can help you resolve the problem. Automated reminders are convenient, but they can feel impersonal and won’t help you understand what is preventing the client from paying the invoice.

Work with the Client to Find a Solution

You could, for instance, offer the client to make a partial payment now and set a new deadline for paying the remaining amount. Be consistent, and don’t hesitate to follow-up as the new deadline approaches.

If a client isn’t willing to communicate with you or doesn’t intend to pay the invoice, you should consider taking legal action.

The first step you can take is to have a lawyer send a demand letter. It’s a formal document that requests a payment. Receiving a formal document can be sufficient to convince a client to pay an overdue invoice.

Going to small claims court is worth it for larger unpaid invoices. You will have to use a paper trail to document the services or products provided, and the multiple attempts to collect on the invoice. The good news is that you can put together a strong case if you have a paper trail, but this process is time-consuming.

A collection agency is an alternative you should consider if you want to save time. Collection agencies act as middlemen and can collect overdue invoices for you against a percentage of the amount collected.

You should also look into invoice factoring. You can sell your invoices to a financing service that handles collections for you, and you will receive a cash advance upfront.

You should take some preventative steps like establishing clear expectations from the start and optimizing your invoicing process to prevent non-payments. It’s also a good idea to have a go-to solution in case a client doesn’t intend to pay you.