Whether this step makes economic sense depends on how much is at stake, how much you will spend to recover the money, and whether you could recover any of that cost as a result of having a costs and/or attorney’s fees provision in your contract. Seek legal remedy: Going to mediation, arbitration or court should be your last resort because it is time-consuming and generally expensive.However, based on experience, a letter from an attorney will usually signal to the non-paying party that you take this matter seriously and increases the chance of payment without having to go to court. Get your attorney involved or hire a collection agency: Many small business owners don’t have the time, energy, or the will to collect on outstanding balances, especially when they’re relatively small.The demand should detail the terms of your agreement (attach a copy of your contract), your efforts to follow up, their response, a copy of the outstanding invoice, and the deadline for payment after which you will turn the matter over to your attorney or a collection agency. Send a formal demand: If multiple follow-ups are met with silence or an outright refusal to pay, send a formal demand in writing.Depending on the situation, negotiating a discount may be appropriate. Follow up: Preservation of the business relationship is important so follow up and give your client or customer a chance to get their house in order and pay your invoice.Send a detailed invoice: This invoice should clearly itemize the services or products that you provided, the charges incurred, the outstanding balance, refer to the payment terms from your contract, and a deadline for payment.If after doing all you can to minimize the chance of non-payment by a client you find yourself with an unpaid invoice, here is what you should do: Keep good records: Keep copies of e-mails, notes from telephone calls, proof of delivery of your products and/or services, proof of any payments made and invoices in case you need evidence to support a future claim.Have a lawyer: Depending on the size of your business, you may not have an attorney on retainer but at the very least, have a referral on hand for an attorney you could call if a problem arises.Stop work if they fail to pay: If you made arrangements in your contract for payments in installments or at various milestones in the project, then to the extent that you could ethically stop work until payment is made, do so.Get paid up front: Receiving payment up front (or at least a portion of the payment) ensures that you will be paid for your services and products.Discuss whether you would be entitled to an award of your attorney’s fees should you be forced to collect on payment.Outline the procedure for resolving disputes related to payment.Outline the procedure for resolving disputes with the services and/or goods provided.This includes the total fees, when they are earned, the payment schedule, when the payments are considered late, and the consequences for late payment. Clearly outline the payments terms in exchange for the services or products that you will provide.Clearly define scope of work or products that you will deliver.Contracts give both side the peace of mind that you and the customer will uphold your respective ends of the bargain and makes it easier for you to seek legal remedy when a problem arises (i.e. Have a contract: Your business should absolutely have standard contracts that you will require your potential customers to sign before providing any goods or services.Thus, the cumulative effect of multiples unpaid invoices, even for small outstanding amounts, is detrimental to your business’s viability and growth.įor the proactive business here are some tips to help you avoid or minimize the change of having a client who doesn’t pay, and increase the chances of collecting unpaid invoices if an issue arises. Additionally, it costs your business time and money to collect on unpaid balances. The cost to your business of unpaid invoices is not just the dollar amount on each invoice but the opportunity cost of the investment you could make in your business from that income. This is a common problem that businesses big and small face and if you’re in business, you’re selling services or products in exchange with the expectation that you will be paid for those services or products. Today’s topic is what to do when a client doesn’t pay. Feel free to send me your “what to do” question. This is the first post in a new series called “What to Do” where I will discuss “what to do” in various common situations that come up in small and medium sized businesses.
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