Spotting the Warning Signs that a Customer Isn’t Planning to Pay

Of all the responsibilities that a business owner must deal with, perhaps the most unpleasant is collecting from your clients and customers, who, for whatever reason, are delinquent in payment for the services or goods they purchased. This is critical to your business, especially when substantial amounts of money are involved.   Try to identify in advance — and avoid — prospective clients that are likely to go missing when presented with a bill. While it’s impossible to fully identify potential “deadbeat” clients, you can still maintain control by paying attention to certain warning signs.  

Anonymous Clients – Proceed With Caution

Some prospective customers do not seem to exist anywhere, other than, say, a generic e-mail address (Gmail, Yahoo, etc.). This is a sign to proceed with caution.

These days, it’s not too much to expect that even start-up businesses, as well as individuals, have some sort of online presence, a true physical location, and a working e-mail address and phone number.

Empty Assurances

One red flag is when clients ask that the work on their product or service commence immediately, but do not give any assurances that payment will be forthcoming. In some industries, it may be common practice for vendors to first provide the goods or services, and then follow up with invoices.

In industries or circumstances where that’s not the case, however, you should consider the lack of credible assurances as a warning sign. This is especially the case if a prospective customer is vague in their communications with you regarding project budgets.

Future Earnings as Payment

Customers who promise you some portion of their future earnings as payment may be legitimate. However, before you begin your work, be sure to lock down all of the terms, and then decide if the potential reward would be sufficient to compensate for the risk.

How realistic are the visions of success? What happens if, despite the best efforts of everyone involved, the new idea proves unsuccessful?

Perpetual Grumbling

A client who consistently grumbles or complains about most details of the project may keep it from ever getting launched. While clients, of course, are right to expect the level of quality work, which was promised at the beginning of the project, those who seem to continually search for reasons or opportunities to criticize the products or services, may in fact be using their professed displeasure to avoid payment.

Combating the Problem

Even business owners who are adept at distinguishing reliable prospective clients from potential deadbeats can still find it a challenge to always be correct in their efforts. Fortunately, there are a number of steps which can be taken. Here are just a few:   

Politely, but firmly follow up. A tactful e-mail can provide a friendly push when an invoice is overdue. For example: “It looks like Invoice #101, dated July 1, 2014, for $1,000 and covering 100 widgets you purchased, may have been overlooked. In case it was misplaced, I am resending it to you.  Please see attachment.”

This message lets the customers know that you’re aware of the balance due, yet offers them the benefit of the doubt. Most people do want to operate their business in an ethical manner, and even the timely payers can make mistakes on occasion.

Move to a phone call. If your follow-up e-mail(s) are not generating payment (or even a response), then a polite phone call should get the client’s attention. Many people find it harder to ignore, or say “no” to someone with whom they’re talking to, than to those they communicate with via e-mail.

Try the customer’s AP or business manager. If your previous efforts were unsuccessful, engaging the accounts payable or business manager may be more successful. It still makes sense for you to remain polite, however, with whomever you are speaking. It’s possible that the invoice truly has been misplaced or is stagnant on someone’s desk. Also, this may be the first time the person you are speaking with became aware of the delay in payment to you.

Polite Assertiveness

Be polite, but assertive. No one wants to have to pursue clients for payment. But you are, after all, in business to make money. Thus, it’s essential that you assertively pursue delinquent payments. Furthermore, before you move on to the difficult collection stage, if you’re concerned about the ability of the customer to pay, institute a policy of a client retainer fee or advance deposit before you commence work. Additionally, politely request progress payments while the work is in process. Of course, you can always relinquish the matter to a collection agency, once all your other efforts have been exhausted.

Sidebar: Considering Legal Action?

With many customers, the tenacity you employ will eventually result in payment. Some customers, however, may still not comply. If you have clients withholding payment, you may seek recourse of legal action. Before taking such a step, ask yourself these three questions:  

1. How much money is at stake? If it’s an insubstantial amount of money to you, it may make business sense to just dismiss the amounts owed and proceed to your current clients.

2. Is the other party able to pay? If the customer has few (or no) assets, trying to obtain payment from them may prove to be a waste of resources.

3. How much time is required to proceed with legal action? Even if the client clearly is in the wrong, assembling all of the documentation and presenting your case will take time away from your other obligations with your current (paying) clients.

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