- How to Deal With Clients Who Are Hurting Your Business Financially - April 14, 2018
A business that nurtures good relationships with clients is likely to find success since the business-client relationship is one that’s directly tied to profits. However, one of the top reasons that startups fail is because they run out of money. Businesses should deal with a client (whose relationship to date has been mostly positive) delicately if they are beginning to show the tendency of paying late or not paying at all.
Aspiring entrepreneurs and small business owners can do the following to get the most out of the business-client relationship without impacting the bottom line, which is essential for survival:
Clients who pay late
When dealing with a client who often pays late, it’s worthwhile to consider why they are paying late. Are they in the midst of temporary investments that are preventing prompt payments, though now the investments are subsiding? Or is there nothing to suggest that the tardiness in payments will go away anytime soon? Do your best to identify whether the situation is temporary or a permanent habit when deciding your next course of action.
You should work with well-intentioned late payers (those with viable excuses) to determine a payment plan that makes sense for both sides. Explain that your business needs to generate profit to stay afloat, though you are also sympathetic to their situation.
Propose that they pay in increments to help your cash flow, such as paying 15 percent now and 20 percent at the month’s end. The day before they are to make the payment, contact them to verify it. Transparent communication is beneficial when dealing with clients who are late with paying though seem to have an understandable reason.
One option you have when dealing with any late-paying client is to withhold copyright until the full payment is received. For example, a web developer or designer can legally prevent their work from going public until they receive payment — if your client goes public with the material, they’ll be violating your copyright.
As for clients who tend to pay late and don’t specify a reason, inform them that their payment directly impacts the work toward their project and that work will not resume until payment is complete. Putting the assignment on hold can inspire them to pay on time. Sometimes, delaying work and productivity can tempt out a payment.
Related: How to Get Your Invoices Paid, Fast
Clients who aren’t paying
Clients who refuse to pay tend to be the biggest headache. Whereas a business can, in good faith, give some leeway to those paying late with a valid excuse, clients who refuse to pay are a different ballgame that often requires outside legal help. Freelancers Union is a handy app that lets you find freelance-friendly lawyers who often tackle issues like non-paying clients, especially if they are serial non-payers.
While clients who refuse to pay without citing issues with your work tend to require a legal pursuit, clients who refuse to pay due to dissatisfaction with your work can be dealt with internally. First, ensure that your work is up to your standards and the examples the client is aware of.
Ask a neutral third party with expertise in the field, with help from the American Arbitration Association, whether your work is up to par. If not, restart the project at no charge. If the client is unrealistic and your product is high-quality, explain in detail why that’s the case with third-party evidence and demonstrations of how the end product aligns with what you initially told the client.
Contractual obligations can also serve as a quality preventative measure, especially when applying terms like late penalties. If a client knows that a one percent fee incurs for each day payment is late, they are likely to be more responsive to paying. Similarly, stopping work upon non-payment makes sense, especially since many businesses must be efficient with their time and resources to make a profit.
In addition to having late fees that both parties are aware of before a deal, sending invoices promptly and having a consistent follow-up system can reduce the excuses of the non-paying client.
If you send invoices regularly, they will not have the classic excuse of “we never received the invoice.” Although bringing a non-payer to court is the last recourse since legal fees can be costly, a startup can make a strong case for the court to rule the client pays if the company has proactive measures like a follow-up system in place.
Positive client relationships are vital for business success, though sometimes factors come into play where clients can’t pay on time, or they refuse to pay at all. In handling these situations with care, entrepreneurs should consider every resource before resorting to the courtroom, including negotiating a payment plan. Companies must think carefully when it comes to client relations and payments involved.