Deter Deadbeat Debtors: What Are the Red Flags?

Purchasing goods and services is one thing, but paying for them might be another. If you haven’t received the money yet, it may be too soon to celebrate! With slow-paying — or even nonpaying — customers or clients, your bottom line can decline quickly. Even more so the case when large amounts of money are involved.

Warning Signs

First, it’s imperative to start by trusting your instincts about your customer base. Stay aware of situations that aren’t the right fit for your business. To stay on top of collections, be aware of these red flags:

Anonymous clients. Some prospective customers don’t seem to exist anywhere other than, say, a vague e-mail address. This is a sign to move carefully. It’s not too much to expect that even start-up businesses have some sort of online presence, a true location, working e-mail address and phone number.

Empty assurances. One warning sign is clients who ask that work on their product or service start immediately, but without providing assurances that payment will be imminent. In some industries, it might be common practice for suppliers to provide goods or services, and follow up with invoices later.

When that’s not the case, however, consider the lack of reliable assurances to be a warning sign. That’s especially true if a prospective customer is ambiguous on the budget for a project.

Future earnings as payment. Customers who promise some portion of future earnings as payment may be genuine. But, before you begin work, iron out the terms and decide if the potential reward compensates for the risk.

How realistic are the visions of success? And, what happens if, despite everyone’s best efforts, the new idea never makes it?

Perpetual nitpicking. A client who regularly nitpicks the particulars of a project may keep it from ever getting off the ground. While clients have a right to expect the level of quality promised at the outset of a project, those who seem to repeatedly search for reasons to criticize products or services may be using their purported discontent to avoid payment.

Steps to Take

Even business owners who pride themselves on distinguishing good prospects from bad don’t always get it right. If you’re doubtful you’ll be able to collect from a customer, it’s wise to ask for a retainer or deposit up front before starting a project. You can also request progress payments while the project is in process. In addition, the following steps can help:

Politely, but firmly follow up. A diplomatic e-mail can provide a kind nudge when an invoice is overdue. For example: “It looks like Invoice #1000, dated April 1, 2017, for $500 (for 25 widgets you purchased), may have been overlooked. In case it was lost, I’m resending it.”

This message lets customers know that you’re aware of the payment due, yet offers them the benefit of the doubt. Most people want to operate ethically, and even quick payers make mistakes from time to time.

Move to a phone call. If your follow-up e-mail(s) aren’t generating a response, a polite phone call should get the client’s attention. Many people find it harder to ignore or say “no” to someone in an actual discussion, as opposed to an e-mail.

Try the customer’s accounts payable staff or business manager. If previous efforts failed, a shift to the accounts payable or business manager may be more productive. But remain polite. It’s possible that the invoice truly is lost or is stuck on someone’s desk. And, this may be the first time the person learns of the payment delay.

Persistence Pays

Delinquent payments aren’t fair, and they can damage your company’s operations and profitability. So be polite, but assertive, when you find it necessary to chase missing payments. With many customers, persistence pays off. Then again, if you have clients that continue to withhold payment, it may be time to take legal action. Your financial advisor can help you sort out your options.

© 2017

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