Regardless of the relationships that you’re building with your customers, there are occasions when payments for a product or service aren’t arriving. Usually, this will be without notice. It’s very rare for a customer to actually tell you that they’re not going to pay you. Unless. of course, they’ve already made a complaint. As a start-up or small business, the only thing more perplexing than what to do if you’ve not been paid, is wondering why you’ve not been paid. Below are some examples of reasons why customers aren’t paying you…
1. It’s your fault
It might sound daft, but invoicing a customer can slip your mind. Especially when you’re already working on keeping the next one happy, alongside running a business. If you don’t invoice a customer straight away it’s easy to forget. Understandably, it’s extremely unlikely that they will chase you instead. Similarly, if you have asked for payment but not made it clear when your customer needs to pay you by, they’re not going to be in any rush.
Before chasing an invoice, taking a moment to check that it has actually been sent to them will stop any embarrassment.
2. They don’t have anything to pay for yet
Has your customer received the product or service that they requested? Or perhaps they received the wrong item? You wouldn’t pay for food that you didn’t order at a restaurant. So you can’t expect payment from customers when they haven’t received the right thing that they need to pay you for. Likewise, if the products or services are being delivered later than planned, allowing extra time for payment is good practice. If an invoice says they have 30 days to pay you upon receipt of a product, they will take 30 days, even if it’s past the due date – which really, they’re entitled to do.
3. The invoice got lost
It sounds like a really good excuse and sometimes it will be. You will have to make the decision whether to give your customers the benefit of the doubt and allow them longer to pay, or not. One way around this is to send invoices straight to your customer’s accounts department via email and then call them to make sure that they have it. If a customer is a repeat non-payer, it may be beneficial to call them just before their invoice due date to check when they have scheduled their payment for. If a customer misses a payment but is usually a reliable payer, then sometimes sending a reminder in the post or via email is enough to get them to pay you as quickly as they can.
4. They can’t afford to pay
A customer who usually pays but suddenly starts missing payments can be a sign that they are experiencing financial difficulty. If you supply to other businesses and companies, late or non-payments can even be a sign of potential insolvency. It’s worth knowing the warning signs of insolvency in case this happens to one of your suppliers, one of your customers, or even to your business.
If you do suspect that your customer has cash flow issues, the best thing to do is to speak to them. Sometimes, if you’re doing reasonably well, you’ll be able to support them with setting up an installment plan for payment, whilst continuing to supply them. This can be worth it if you want to keep your relationship with your customer. After all they could get back on their feet as soon as one of their customers pays them. Alternatively, cancelling credit arrangements with customers if they aren’t paying you on time may be necessary. Ensuring this is in your payment terms and conditions is important at this point. For future transactions, they would need to pay you upfront.
5. They just don’t intend to
Your customer might be unhappy with the quality of a product, service or customer care you are supplying them with with and so simply decide not to pay you. They may have found a supplier that they prefer or who can supply them more cheaply. They might just be a really bad business-person. Sometimes, whatever their reason, customers just won’t have any intention of paying you. Luckily, this is extremely rare – it’s not a good way of doing business and generally isn’t sustainable. If this happens to you, you only really have two choices:
- decide whether to cut your losses, or
- take your customer to court
For England and Wales, the total you can claim in the small claims court (click here for more information) is £10,000 – for anything higher than this; it’s usually worth seeking legal advice or getting a reputable debt recovery company involved.
Looking after your own interests
Whatever the reason why your customers aren’t paying you, you can’t make them have good financial planning skills. But you can choose to put them in place yourself. babr can help you both collect overdue invoices and put into place sound processes to limit the level of invoice debt and keep the money flowing in. Call us on 020 3435 6060 and let’s talk.