They’re out there! Who am I talking about? Non-paying clients or customers.
And it seems that they’re waiting to prey on small business owners and entrepreneurs like you.
Increasingly, this is one of the biggest problems I am meeting as I work with my clients to help them to turnaround their businesses. And these “customonsters” come in all shapes and sizes, forms and fashions.
The big question my clients are asking me is: What do I do when the client won’t pay? Or what do I do about non-paying clients?
First, let’s look at the people who won’t pay.
Categories of non-paying clients
Usually, your non-paying clients fall into 3 categories:
- Category #1 has those clients with no money at the time the payment is due
2. In category #2 are those who are not happy with your work
3. In category are those who want to spend “your money” on something else
Those with no money will eventually pay you. They are basically honest people who might have fallen on hard times so be very kind to them and work with them on a solution.
Those who’re not happy with your work spell trouble. You need to get as much information about their dissatisfaction as you can. You should accept responsibility for any problems and offer a fix because whether you agree with them or not, there is serious potential for damage to your reputation.
Those who want to spend “your money” on something else are bad news too. Sorry to have to break the news to you, but they seldom intended to pay in the first place.
Who is to blame for your non-paying clients?
What if I were to tell you that you are to blame when people don’t pay you?
Now that you’re done cussing me, let’s examine my question.
Some of you are very uncomfortable about dealing with money in any form. You’re afraid to ask for what your work is worth. You’re uncomfortable negotiating with your bank for a loan, a waiver on fees, or anything. Some of you can’t even ask a friend to repay a loan
And let’s not forget about asking clients to pay up…you’re seldom up to that!
Then there’s a group of you that have difficulty with money that fascinates me.
As an “artist” you are completely focused on creating or delivering on your craft. And you’re good at it too. But dealing with money is not something you do well, if at all. So what happens?
You have no good idea who owes you and just to be fair, you are not sure who you owe either. You are uncomfortable (or can’t afford) outsourcing.
As a small businessperson, when you can’t ask for your money, when you can’t be strong and assertive in any situation, you are playing fast and loose with your business.
More importantly, you send a strong message to your clients that they can pay you when they feel like.
How can you be upset when they take you seriously?
Strategies for addressing non-paying clients
Now here are some strategies you can use to address your problems with clients who don’t pay, especially for categories #1 and #2.
1. Make your payment policy simple and clear from the outset
First you have to have one. Then it has to be clear to you so that you can make it clear to your clients.
This is very important. Far too often, when I ask my clients “what does this mean?” referring to something is their payment policy, they admit that they don’t know or can’t remember.
Such a policy should include:
- Actual due dates (not 2 weeks from the last Friday in the month!)
2. What constitutes late payment (and how it will be addressed)
3. Cancellation policy (when and how you will cancel and allow the client to cancel)
4. Refund policy (keep this tight)
5. Non-payment policy (Not the same as late payment. Intended to stop client from using your intellectual property (IP) when they don’t pay)
6. How you will communicate (Intended to prevent client from claiming, for example, that an email is not valid notice of outstanding amount)
7. Completion criteria (this lets the client know exactly what constitutes “finished work”)
8. Any other policies specific to your business
Once you have your policy in place, be sure to place it in every contract.
And be willing to enforce whatever you promised when the debt is not paid, unless the client is faced with unexpected disaster. Remember, you are a small business and you cannot carry a large amount of debt.
2. Choose your customers or clients
You do have criteria that a client must meet before you work with them…don’t you?
You should never so desperate as to have to work with a client who does not meet your selection criteria. Or one that meets it and then your gut says “no!”
As a result of carefully choosing my clients for among my prospects, from the very beginning, my problems with non-payment are almost non-existent.
3. Do your due diligence to avoid non-paying clients
There are 2 things I notice that small businesspeople are extremely secretive about, especially in my neck of the wood. Who they clients are and how much they are paying.
And guess what?
You run the risk of ending up just like a woman (or man) who does not do even a little background check on a new love interest, only to regret it down the road.
But when you ask among your colleagues about a potential client, you just might learn why that person should remain “potential” rather than allowing them to become a “non-paying client.”
4. Get comfortable asking non-paying clients to pay up
This should be part of your overall strategy for getting comfortable talking money. And large sums too!
You should be comfortable just mentioning large sums of money in casual conversations. Or engaging in financial negotiations. And yes…asking a client to pay the money he or she owes.
If you take the advice in #1 above, requesting a payment will be so much easier. I will go further and say get a mentor to help you, if you think your problem is really bad.
The one thing you don’t want to do though, is play “collection games” when asking a client to pay what they owe.
Chances are, you entered the contract by yourself so don’t be telling the client that “their debt has been passed to the collections department.” Chewpse!
They will know if such a department exist and if it does, they will also know that it was set up because so many of your clients do not pay.
5. You can require 100% of your payment in advance
This seems to be more viable when you have established a reputation in your niche or market or you have differentiated yourself in your space.
Honest clients won’t have a problem with this but it depends on the size of the contract and how clearly you spell out what they are getting for their money.
I am not about to pay anyone $100,000 as full payment in advance and neither will I expect that from anyone.
6. Learn how to offer a discount to encourage early payment
Every time I say this, there is a small business owner waiting around a corner to tell me why this does not work.
Here’s how YOU do it:
Let’s say you are in the process of getting a $60,000 contract. To encourage early payment, you offer a 5% discount. No problem. So you reduce the contract by $3,000 and spread the payments out evenly over the life of the contract.
Here’s how WE do it:
In some of our businesses and in some cases, we do offer early payment discounts. However, staying with the example above, what we do is to take the full discount off the FINAL payment only.
In this way, the client gets no benefit from a discount, until they have paid in full AND in the agreed time.
Trust me…it works nearly every time.
7. Open a “B & B” list for non-paying clients
It’s a Block and Ban List. You just have to accept that there are dishonest people out there and protect you and your business against them.
Please remember, this is part of your internal decision-making and money management policies. You do not go around gossiping about the person(s) on that list, however horrible they are. Doing so will only establish you as unprofessional.
Your next “non-paying clients” steps…
So there you have them…7 practical strategies you can apply when you have non-paying clients. I really hope this is not your problem.
Did you notice anything in particular about them?
Well, 6 of them require you to change some of your behaviour or approaches while only the last one is directly applicable to the client.
Think about that. It’s another example that when you take responsibility for a problem, you can fix it.
So if you have a non-paying client, try strategies 1 – 6 and you might find that you don’t even have to use #7 after all.
To your collecting success…