Six Things You Can Do If Your Customers Refuse to Pay

In an ideal world, everyone keeps their promises. The most important one that business owners have to deal with during invoice management is when customers promise to pay at a later date for goods and services purchased.

What happens, however, if they break that promise and refuse to pay?

In this article, we share six tips for what to do as a business owner if you find yourself in this unfortunate situation. We will also discuss the steps you can take to prevent it from happening, and what you can do if customers simply refuse to pay.

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Tip 1: Plan for the Worst, Hope for the Best

While this might sound overly pessimistic, we recommend anticipating at the start of the financial year that a certain percentage of your customers will not pay their invoices. Based on this percentage, you can then adjust your budget accordingly for the rest of the year. This way, you will not be financially blindsided when/if your clients do not pay.

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Tip 2: Start with Friendly Reminders before Escalating

Sometimes, customers do not pay their bills due to an honest mistake on their part. Many overdue invoices are often resolved through a friendly reminder that the bill is overdue, and that payment should be made immediately.

However, you can also use that opportunity to check in on your client and see how they are doing. You might then find out that the underlying reason for the overdue invoice was a family emergency, significant workforce changes at the company, or something else.  

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Tip 3: Charge Late Fees

Always have a formal, written policy for how late fees are charged for overdue invoices. Share this policy with every customer before the transaction is complete, so that customers cannot claim that they were unaware.

Having said that, be sure to send the client a reminder 24 to 48 hours before the late fee is set to be implemented, so that, once again, the client will not be able to claim they did not know about the late fee.

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Tip 4: Hire a Debt Collection Agency

Debt collection agencies are experts in recovering payments that are more than 90 days late. They will follow up with your client so that you do not have to, and use best practices to get the individual to pay. While the agency will take a percentage of the debt collected as their fee, it is well worth paying this fee for a peace of mind and recovering the majority of the debt that your customer owes you.

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Tip 5: Stop Providing the Service Until Payment Is Received

If you are a service provider, a simple solution for a non-paying client is to stop providing the service until they pay their invoice. Give them a written notice that explains that you will no them their desired service if their invoice is not paid by a specific date. Do not forget to attach a copy of the contract that both you and your customer have agreed upon and signed, as evidence.

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Tip 6: Take Legal Action

We saved the most dramatic course of action for the last. Even though you might be reluctant to take legal action and find it too expensive, time-consuming, and uncomfortable, you could lose more money by not taking legal action.

For instance, some people will not take you seriously if you are the one threatening them, but they will be shocked into action once they receive a letter from the lawyer. Getting legal action shows clients that you are able and willing to stand up for yourself, and will allow yourself to be taken advantage of.

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Sprout with Us!  

Sprout Asia wants you to focus on what you do best, while we take care of the rest. That is why we offer budget-friendly accounting services, so that our experts can keep tabs on your invoices and manage your finances with ease, so you never miss out on a payment.  

Feel free to reach out to us with any questions you may have about our services, and we will respond to you within 24 hours.