Are things at your business really busy and you are making lots of “money” but you don’t seem to have a lot of money?
Do you finding that your customers are taking too long to pay you, or are some not paying at all?
This article will help empower you to take action. There are steps you can take that will maximize your payments and bring cash into your business.
Your first tool in getting paid is the accounting statement. This document is a list of invoices that are unpaid. It is sometimes called a statement of account. Your accounting system, such as Uwazi, can generate these statements.
A statement will list for each unpaid invoice:
- the total of the invoice
- the unpaid amount of the invoice. This can be different than the total of the invoice where there has already been a part payment
- the due date of the invoice
The statement will also show the total of all payments that need to be made.
When to send statements?
There are four key points in time where you can send statements:
- When you issue an invoice: Be careful here as some customers may consider a statement at this point to be aggressive. On the other hand, some of your customers may want statements at this point
- End of each month: This can be done as part of the normal course of business. You would only send statements to customers that have open or unsettled invoices
- Once an invoice has become overdue: This can be your first proactive response to the failure of your customers to overpay
- After each interaction that you have with customers with overdue invoices: As part of your management of unpaid invoices, you may take additional actions. Some of these are discussed below. After each of these, you may find it helpful to send a copy of their current statement.
Statements normally show open invoices only. A open invoice is one where there is an outstanding amount owing on it. If your customer has made some payments, but is unsure about how you have applied these to invoices, it may be helpful to generate a statement that also shows closed invoices.
2 Follow up emails
Sometimes, it takes a personal touch. You can send an email to your customer highlighting that there are outstanding invoices that are payable. In these emails, as in all of your communications with customers, be respectful and positive in your language. You can make statements like:
- “we’ve noticed that invoice has not been paid yet. Please attend to this as soon as possible.”
- “you may have missed invoice ‘X’ which was due on ‘month and day’. Please arrange payment for this invoice.”
Invite your customer to contact you if they have any concerns or questions.
3 Talk to your customers
If your customer is not responding to statements and your emails, it is probably time to get in touch. However, before you pick up the phone, be prepared. If there are any legitimate issues that they have with the products or services that your organization have provided them, you will need to be aware of them and take them into account.
Your conversations with customers should be respectful. In some jurisdictions, if you make calls that are aggressive, they can hurt your legal prospects of enforcing payment, or incur penalties. Don’t harass your customers. Instead, speak to the point. Be prepared to listen to your customer, but also don’t get distracted by tangents that your customer can put up to avoid the subject of paying you. Politely, but firmly, return the conversation to the matter that their invoice is outstanding and you need to know what is going to happen to change that. You also need to know when this is going to happen by.
Make sure you note any commitments that your customer makes. These include both amounts and time-frames.
4 Stronger emails
If your emails and conversations with your customer are not getting results for you, it is now time to take it up a level.
You can consider sending an email from a dedicated email address of your company, such as “firstname.lastname@example.org”
You can make mention of:
- The invoice amount
- When the invoice was due
- A brief rundown of attempts that have been made previously to obtain payment
- The fact remains that the invoice needs to be paid
- Your company appreciates the relationship with your customer, but you reserve all your rights to take further action.
You should remember that this email needs to be respectful. This is true of all your communications with your customers. Your communications should be respectful, professional and not harassing. Your email also needs to be firm so the customer realizes that your company is serious about obtaining payment.
Using this tactic – an email from email@example.com – is a technique called Argument from Authority. It also allows you some latitude to play good cop, bad cop. Your emails from the lawyers account can be more firm, while other communications can be more consolatory, all the while pressing your customer for payment.
5 Demand Letter or Letter of Demand
This is a formal letter. In some countries it is called a Demand Letter while in others it is called a Letter of Demand. Many jurisdictions require that you send a formal letter of demand before the courts will accept your claim for payment.
- In the United States, ensure your letter complies with the Fair Debt Collection Practices Act. You should review your obligations under this act to ensure all of your conduct complies with it.
- Clearly identify yourself, including your formal or legal name (individual if you are a sole trader, otherwise it will be your organizational or company name)
- Clearly identify your customer, or otherwise the party that is liable to pay you
- Provide details of the debt. This includes invoice numbers, due dates and amounts. Include any payment details that the customer has made.
Your relationship with the customer is going to be impacted by sending a letter of demand. You have to balance your interests of wanting further business from the customer against your need to be paid. Keep in mind, no business is worth it if the customer never pays.
Keep your letter to the facts and ensure any emotive language does not make it into any of your communications. Always be a professional.
Demand Letters on a legal firm letterhead
You may find it useful to use a law firm’s letterhead for your demand letter. Many legal firms offer this as a specific service. It is another form of Argument from Authority and you need to consider whether it is worthwhile given the expense. Using a firm’s letterhead does indicate that you are serious about collecting the debt.
6 The Personal Touch on site
If the outstanding amount is large, you can find it helpful to go to your customer and spend some time in their reception. Ask to see their manager or the most senior person who works there.
If that person is unavailable, you can say that you will wait for them to be available. If the debt is large enough, you could remain around all day. Ensure that everything you say is respectful. Don’t say anything emotive or make any threats.
In one case, a person did this and greeted anyone else arriving saying “I’m <my name> and I am from <Company X>. I’m here waiting for <Company Y> to get an unpaid invoice to my company resolved”. In that case, even though everyone was busy and unavailable, the customer became much more keen to get the invoice paid and sorted it out that day.
7 Pursue small claims in special courts or tribunals
Many jurisdictions provide specialized courts or tribunals to deal with small claims. You may not need lawyers when using these courts/tribunals. You may find that your costs are much lower as a result. In addition, rules of evidence and other formal procedures are relaxed. The process is much more informal.
Examples of these courts/tribunals:
- New York state (US): The Small Claims Court hears matters up to US$3,000 to $5,000 based on location
- California (US): The Small Claims Court hears matters up to US$5,000
- Victoria (Australia): The Victorian Civil and Administrative Tribunal hears matters up to A$10,000
Considerations when going to these courts/tribunals
You will need to pay a fee to file/lodge your case. In some cases you may get this fee, or part of it, back. For most matters in these courts, expect not to recover any legal expenses in preparing your case. The purpose of these courts and tribunals is to resolve lower cost claims in a cost effective manner.
It is important to clearly identify the issues in making your claim. These should have been identified in your demand letter or letter of demand. Courts generally do not respond to emotive argument. They apply law to facts and reach a conclusion.
8 Pursue larger claims in the courts
In larger matters, it is even more important that you are clear about the facts of your case.
If there is any counter claim that is being made by your customer, you need to be very aware of the related facts. Does the customer have some legitimate reason to not pay you? Is there warranty issues?
If you have failed in a critical part of the contract, a court may find that you have breached a condition of the contract. In that case, a court can void the contact and you don’t get paid anything.
Dealing with lawyers
It’s no secret that lawyers don’t come cheap. They get paid a lot of money to know their stuff. You help your cause by knowing yours. Don’t allow yourself to spend upwards of $1,000 per hour to be educated by a senior lawyer. Educate yourself about the key issues of your case. The lawyers are there to fine tune your case.
The lawyers that you engage are not ultimately responsible for winning the case. In most situations, they get paid regardless of whether you win or lose. It’s up to you to ensure that all facts are in the mix – don’t rely on the lawyers to have to make deductions about what is going on.
It is easier to bring a significant case if you have evidence. Evidence often comes from documents. You need to document everything that is related to your case. What invoice was sent? When was it sent? Who was it sent to? Do you know they saw it and how do you know that?
Document all your communications and any representations your customer has made to you.
What order from the court do you want?
Be clear about what you seek from court. Is it a monetary order – an order specifying that they are required to pay. If you need some other order, such as an injunction or an order for the customer to take some specific action, then you need to identify this quickly. Non-monetary orders involve a different branch of law than pure monetary compensatory orders.
9 Enforcing your court or tribunal order
Once you have your order, your work is not done. That is to say that the court does not pay you. This means that you still need to collect from your customer. However, you now have more measures available to you to collect payment.
Your jurisdiction may require that you serve the court order to your customer. The process is similar to a demand letter or letter of demand. In this case, you are not making a demand, you are providing a copy of the court order.
Your debtor may have rights to pay by installments. If the law provides these rights, you won’t be able to enforce payments at a faster rate if they properly elect to use those rights.
The court order allows you to seek additional orders that provide for payment measures from your debtor. These include:
- bank garnishee orders
- asset seizures by the Sheriffs department
The process you need to follow will be unique for each jurisdiction.
10 Service changes and downgrading
A final tactic you can take is ongoing service downgrading. If you are providing ongoing service to your customer, you have capability to control the terms that you provide future service
Cash on delivery/prepayments
If your customer is a bad payer, you can stop providing them ongoing credit and instead require that they must pay in advance. For physical goods, you can require cash on delivery. For services, require payment in advance.
You can consider a staged approach to service downgrade in event of non payment.
- For historical bad payers, send reminder notices in advance of the due date. As the invoice is not yet payable, these need to be very light and factual
- Send further reminders after the due date – as soon as a day after. A debt is more collectable the sooner you act
- If payments remain outstanding, being to downgrade outputs from your service. You might cut off access to key reports, data exports, etc. Identify key parts of your value proposition and begin to withdraw access to it
- Your could then move to withdraw all update or write access to your service
- By this stage, you have downgraded much of your value proposition to your customer. You can still act to deny all access to your service until the payment issues have been resolved
- Your final step might be to delete customer data. Any non-reversible acts that you take need to be done with care. If an issue is before a court, you might want to hold off on this until no matters are outstanding.
You may now realize that you have many measures that you can take if your customers are too slow to pay you, or if they refuse outright. You need to try to remain unemotional and professional at all times during the process of using any of these measures. Key tactics available to you include:
- Using statements of accounts and sending these at various points in time
- Following up your customer via email
- Talking to your customer via phone
- Sending more firm emails (eg from firstname.lastname@example.org)
- Giving a Demand Letter or Letter of Demand to your customer
- Going to your customer’s office and providing a personal touch
- Pursuing small claims in special small claims courts or tribunals
- Pressing larger claims in the courts
- Enforcing your court order
- Downgrading services
Check out Our Guide to Issuing an Invoice for some handy ideas.
If you have any measures that you take in getting paid in your business, we would love to know about them in the comments.