Whether it’s a client who continuously submits late payments or a one-timer who completely ghosts you, dealing with a nonpaying customer can be stressful.
Ultimately, you’re responsible for following up until you receive the money you’re owed, and doing so may even require taking legal action. However, there are tactful and professional ways to handle customers who don’t pay their bills. We detail common reasons why customers miss a payment, provide different options to pursue, and list helpful tips to prevent nonpayments from happening in the future.
[Read: 8 Ways Your Business Can Find New Customers]
Common reasons why customers don't pay
There are many reasons why a customer or client chooses not to pay their invoices. Here are three common reasons clients give when they miss a payment:
- Low priority: Your customers might have more important bills or debts to cover than yours. If it’s a matter of paying rent or keeping the lights on, they’ll ensure those payment deadlines are met before yours.
- No repercussions: If you’ve been lenient with late payments in the past, some customers may take advantage of your kindness.
- Tough times: Sometimes, a customer is simply enduring a difficult financial time and cannot meet your payment deadline as originally anticipated. In this case, it may be more difficult to collect your payment.
- Poor organization: More common for B2C companies, sometimes customers simply forget to pay their bills on time. More than 20% of participants in a recent LendingTree survey said they just forgot the deadline.
Try creating a series of reminders
For customers who are just forgetful, or who may be taking advantage of your leniency, start by creating a series of reminder emails to prompt on-time payment. Offering these reminders will give your customer the benefit of the doubt and give them every chance to remedy their delinquent habits.
Clover recommends scheduling a series of emails that could look like this:
- Email 1: Send a receipt upon completion of services (if applicable).
- Email 2: Send a week before the payment is due.
- Email 3: Send the day the payment is due.
- Email 4: Send a week after the payment is due.
- Email 5: Two weeks after the payment is due.
Be persistent, but be polite. If the customer still doesn’t pay, then it’s time to take more serious action.
For customers who are just forgetful, or who may be taking advantage of your leniency, start by creating a series of reminder emails to prompt on-time payment.
What to do if a customer doesn't pay
If you have sent payment reminders, follow-up emails, and phone calls, and the client still hasn't paid their invoice, consider these options before moving forward:
- Consider whether further action is worth it. If the missed payment is relatively small, you might not want to waste time or resources on further action. However, if the payment is a major chunk of your yearly income, it’s worth getting help from an attorney or collection agency.
- Talk to a lawyer. If nothing you’re doing to receive your payment is working, get an attorney involved. They’ll recommend which legal courses of action you should take against your employee, and ensure you’re adhering to any relevant laws or regulations (like the Fair Debt Collection Practices Act).
- Talk to a collection agency. Collection agencies collect your debt for you. Do some research to find a reputable one for your business.
Whatever you decide to do, make sure all your communications with the client are polite, professional, and nonthreatening.
[Read: 6 Customer Service Strategies That Will Boost Sales]
7 tips to prevent non-payments
Want to make sure your customers never miss a payment deadline? Here are some tips for preventing nonpayments:
1. Research your new prospects.
Just like your customers likely evaluate your company before doing business with you, you should research your prospective clients before offering them your services.
2. Discuss payment terms upfront.
Make sure to detail all projected costs from the start, including installment fees and deadlines.
3. Consider offering early payment discounts.
Early payment discounts can incentivize your clients to pay not only on time, but ahead of schedule. Terms like “2% 10 net 30” indicate that a customer who pays within 10 days can receive a 2% discount; otherwise, full payment is due within 30 days. However, early payment discounts can impact your bottom line, so use them wisely.
4. Send invoices immediately.
Give your clients ample time to pay you by sending invoices and billing for work upfront.
5. Accept payments online.
The more flexible you are, the easier it will be for your customers to pay you on time. By accepting digital payments, you’re accommodating those customers who prefer using popular apps like Venmo or PayPal.
6. Revamp your billing structure.
Many businesses operate with a simple accounting process: formalize an agreement, perform the work, and bill the client. However, this puts the power in the hands of the client, who can receive the deliverable and decide not to pay.
“If this happens to you, a simple solution is to require up-front payments before you deliver your service or product,” wrote PaySimple.
As well as requesting a deposit before you start work, provide a policy with steps your customer can follow if they’re not happy with the product or service—instead of deciding not to pay.
7. Work with a factoring company.
Factoring companies pay you immediately following an invoice, using it as collateral. Then, when the client themselves pay the invoice, the transaction will be officially closed.
[Read: 5 Ways to Build Trust With Your Customers]
While you can’t control a customer’s decision to not pay you, you can follow these tips to help customers avoid late or missed payment deadlines.
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