One of the most onerous parts of running a business is trying to get paid. In a perfect world, a business completes an agreed project and receives payment immediately. That is, of course, how retail works: you pick a product off the shelf, proceed to the checkout area, make payment and leave. You know own what you paid for. For most non-consumer businesses, however, invoicing is the way it is.
Many of Kona Impact’s clients lament how much trouble they have to go through to get some customers to pay. After over 4,000 invoices, 800 or so clients and ten years in business, we’ve learned a few things. Here’s our take on getting paid.
Why clients don’t pay …and what to do about it
Bankruptcy / Legal Problems – These are the hardest, as the court has probably set out who can get paid and under what circumstances. You probably have little chance of being paid. The only leverage you have is if your client needs something you have—a service or product. There is no use in digging a deeper hole, so demand payment upfront, and try also to require payment on past due amounts. You have no responsibility to provide services or products to a business or individual for which payment is uncertain.
They say they are broke – This is seldom the case that a client has absolutely no money to pay for what you have provided. They do have resources, but paying you is not as compelling as keeping those resources. Here is where a three-prong approach often works. First, be the squeaky wheel and keep reminding them of their non-payment. Apply late fees (if you have made these clear at the time of initial invoicing). Another prong is to get something, anything from them on a regular schedule. A hundred dollars a week on a thousand dollar invoice will reinforce to the client the need to get paid. Finally, consider Small Claims Court. Kona Impact has filed a few times, and it’s amazing how quickly a client can find the money to pay. We always received 100% payment before the court date in both instances.
Slow accounting practices – We find this with several big businesses: the local guy submits the invoice, which goes to the regional office in Honolulu, which goes to the Mainland office, which goes to the accounting department, which, by practice, processes invoices on a Net 30 (or worse) basis. As a result, it might take 60+ days to get paid. At Kona Impact, we’ve found that local office most likely has a credit card for expenses, so try to get paid that way. Otherwise, you will wait and wait, and there is little you can do about it. Our record late payment this way was from Mainland hamburger restaurant that took six months to pay!
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Poor accounting practices – At Kona Impact, we send all initial invoices by email with tracking, so we are reasonably certain if the email has been opened or not. If after a week, we have not received payment, the invoice appears not to have been opened, and it’s a new client, we’ll double-check the email and send a paper copy of the invoice. If after two weeks—we are Net 15—we’ll send a Past Due Invoice and sometimes follow-up with a call. We accept that there are disorganized clients, and it is our job to help them stay on top of things! (Not really—all we want to do is get paid!)
“Dissatisfied” client – I put this in quotes because it’s common for clients to invent dissatisfaction because their true reason for not paying is that they have poor cash flow or are broke. That said, every service and product provider will occasionally fall short of providing what was promised. The important point, as it relates to billing and getting paid, is that you need to open the lines of communication and seek resolution, as you won’t get paid when a client thinks they didn’t get what you want them to pay for. Yes, this is a perception game, and the truth might not be that important, as long as someone feels slighted. Make a call and try to figure out how to reach some compromise. If they dig in their heels, it might just be a bullying attempt prix de viagra en pharmacie. Don’t give in; just file against them in Small Claims if you are certain you have provided what you are asking them to pay for.
Poor Cash Flow – This is when a client’s finances are irregular, and there is not enough money in the bank to meet liabilities. The good news is that your client or customer will probably eventually pay, but the bad news is that it might be at some uncertain time in the future. If it’s an established and reliable client, patience (and a few reminders and maybe some late fees) are in order. If it’s a new client, you need to have ‘the talk.” For the most part, clients and customers will meet whatever boundaries you set, and if they can’t or won’t, you might want to reconsider keeping them as clients. I’ve always found that if you set Net 15 day terms, you get paid in about two weeks; if you set Net 30 terms, you get paid in about 30 days, and if you set Due on Receipt terms, payment can be immediate or up to 30 days.
The important issue in all of the above scenarios is to find out the reason for not getting paid. Your choices might range from patience—there is nothing you can do—to filing in Small Claims Court or Circuit Court, if it’s a large amount, to protect your rights. I always advise trying to work things out informally instead of working through the legal system, but at the end of the day, you deserve to get paid.
Some recommend trying to set up payment plans. At Kona Impact, we have mostly found these ineffective unless we have a credit card on file that we can charge on the set schedule. We find that clients who don’t pay what’s done when it’s done seldom have the responsibility and integrity to pay on installments.
The other important issue is to manage risks. New clients should pay more upfront and be subject to a “Cash on Delivery” system until they gain your trust. Clients that violate your trust and become difficult to collect payment from might be clients you want to drop.
At the end of the day, you have no obligation to serve any client, especially ones that subject your business to unnecessary risks. It’s perfectly OK to refuse service to someone that might not meet your terms and conditions.