How Your Business Can Handle Non-Paying Customers

Whether it’s an individual or a business who’s refusing to pay an invoice, it’s a challenge to deal with non-paying customers.

So, what can you do when a customer won’t pay an invoice?

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There are a lot of options available, especially if a customer is refusing to pay for work you’ve already done.

We’ll cover these points and more ways to deal with non-paying customers, below!

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Why Would a Customer Refuse to Pay You?

There are lots of reasons why a customer might refuse to pay you:

• They don’t have the funds available
• They could have gone out of business
• Perhaps customer isn’t satisfied so is refusing to pay
• They may be trying to avoid paying for the work

Whatever their reasons, dragging out the payment process will be frustrating and costly. And at the end of the day, without good payment processes in place, you can be at the mercy of the customer:

It doesn’t matter how early or prompt you are, how clean or courteous you are, or how high-quality your service and workmanship are… the customer always has the financial upper hand.

Elliott Raggio, Director of On Tap Property Services Ltd

Fortunately, there’re preventative steps you can follow to help avoid non-paying customers.

There’re also actions you can take to actively manage non-paying customers, too.

Let’s explore both, below:

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How to Avoid Non-Paying Customers:

Here are eight preventative measures that will help you to avoid non-paying customers:

1. Don’t push the sale.
2. Watch out for penny-pinchers.
3. Insist on a contract.
4. Collect evidence before chasing.
5. Get paid upfront.
6. Beware the common red flags.
7. Be picky with your invoices.
8. Get yourself organised.

1. Don’t push the sale.

When it comes to selling, if you don’t ask, you won’t get. However, no customer wants to be pushed to say “yes” to a job, either.

If your team have to push to make a sale, that’s not a positive experience for your customer. This can easily lead to resentment, or even buyer’s remorse.

In the worst-case scenario, the customer could back out of a job and refuse to pay and in more extreme circumstances, they may even cancel a job that’s already begun. It all comes down to your professionalism and the journey you take your customers on.

Consulting with them properly ahead of time and setting expectations will be a big help to getting customer to pay you on time.

2. Watch out for penny-pinchers.

If a customer seems more concerned with the price of your plumbing services than the services themselves, be wary. Everyone wants a good deal, but a race to the bottom is rarely worth the effort.

If you can agree on a price ahead of time, you’re more like to avoid difficult payment conversations later. This will reduce the number of non-paying customers you’ll deal with, too.

Agreeing a price ahead of time is also help by point 3:

3. Insist on a contract.

When clients ask: “Do we really need to use a contract with every customer?” The answer is quite simple: “Yes.”

Heed this advice.

If a customer refuses to sign a contract, send them packing.

You’ll find it always worth producing a detailed contract with clear terms & conditions for your customers.

It’s increasingly less likely to rely on a verbal agreement alone these days, because of a simple rule: no paper trail = no pay.

If there’s no paper-trail it’s far easier for a customer to dispute the price of a job. A simple quote and and signed authorisation can go a long way if a dispute does arise, later.

This way, pricing is transparent and a signed contract makes it harder for a customer to refuse to pay for work later…

4. Collect evidence before chasing non-paying customers.

It’s easier than ever to collect and record useful data these days. If you’re using software to help manage your business, then taking photos, sharing files, and even helping customers sign digital contracts is quick and easy.

There’s really no excuse not to use software to help you:

We do all we can to avoid being put into this position [of not getting paid] by taking regular photos and getting on-site signatures in our Commusoft app.

Elliot Raggio

Using a digital form that pops up on an engineer’s phone or tablet makes collecting evidence easy.

Give yourself the best chance of avoiding non-paying customers by using software to support simple, effective record management.

5. Get paid upfront.

Getting paid upfront is the most effective way to get paid on time.

It could be that you ask for a deposit as a percentage of the overall job.

Depending on the type of work being done, you might ask for payment to be made in stages.

For example: one-third paid as a deposit, another third halfway through the job’s timeframe, and the final third once the job is completed.

Importantly, you shouldn’t start work until you’ve collected that first payment.

You should also ensure that customers are clear on payment terms.

(Again, a contract is useful here).

6. Beware the common red flags of non-paying customers.

A good rule of thumb is to treat every customer equally and look out for red flags that may indicate problems.   

No matter who they are, you can do your due diligence ahead of time to ensure customers are capable of paying you. It’s always worth the effort to do some research.

After all, the bigger the job, the more it can hurt if the customer refuses to pay later.

To start gathering intel on a potential customer, check out Companies House, which can let you examine businesses’ returns. Red flags to watch for could include when a customer is:

• Selling their company.
• Laying off workers
• Not communicating with you
• Making excuses when you do talk to them
• A client of theirs has filed for insolvency.

Do your due diligence before starting work. If you spot any red flags before, proceed with caution. If you set your processes up right, be sure to stick to them: it will protect your business from unexpected surprises.

7. Be picky with your invoices.

Incomplete or incorrect invoices will delay payments. 

At worst, less-honest customers will use a typo or a missing VAT number as an excuse to stall your payment. This means you need to make sure your invoices are always filled in correctly and accurately.

To avoid late paying customers it’s suggested that you include the following on all invoices:

• The correct name and address for the customer.
• A description of the work agreed to and completed.
• The purchase order number.
• VAT details like the tax date and VAT registration number (if you’re VAT registered).
• Terms and conditions.
• The due date. Figure out when you need to get paid—and reduce that number by 14 days on your invoice (and contract terms).
• Your contact information so the customer can call if they have questions.

Also, keep in mind that payment is time sensitive. You can have the most organised invoicing system on the planet, but if you delay, you’re not going to get paid on time.

8. Get organised to avoid non-paying customers.

From the first confirmation, right through to completion, clear messaging helps to set expectations and reinforces deadlines. If you keep your customers informed, you’re far more likely to get paid on time!

On the other hand, sloppy accounting practices will cause your plumbing business to lose lots of cash. If you organise yourselves, you’ll speed things up for customers, too.

This means creating:

• A payment workflow.
• An estimate template.
• A contract template.
• An invoice template.
• A friendly reminder template to send before the payment is due.
• Demand letters for when requests require urgency.

Customers who refuse to pay can be a major stress, but if you prepare for the worst-case scenario by creating all the tools above, you can make the process of getting paid swift and painless.

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Listen to TakeStock and discover to chase non-paying customers with ease!

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Here’s What to do When a Customer Doesn’t Pay:

You’ve seen the preventative steps that can help you to avoid late payments. While they’re going to be useful, it doesn’t mean you’ll never have late payments to deal with ever again.

For when you do have to chase a customer, here’s what you can do when an invoice is not paid on time. From legal action to debt collecting, there’re more than a few options available to you: 

1. Get in touch with the customer directly
2. If work is on-going, hold the job hostage
3. Write a demand letter
4. Don’t name and shame the customer
5. Take action and call in the collectors
6. Let the lost payment go

1. Get in touch with the customer directly.

Let’s say a customer’s payment is two days late. It soon becomes five days, then a week. Waiting clearly isn’t going to solve the problem.

Instead of waiting, you need to be proactive and contact them. Reach out in as many ways as you can. Start with an email (ideally with an instant bank transfer link), or a phone call, but if the delay continues, contact them via text, post, and repeated emails that stress the urgency of the situation.

It’s important to have a conversation. Keep the call friendly, but be sure to record all the details in case you need to follow up later

It could be that the customer forgot, or perhaps they need assistance paying you in another way. Either way, a gentle reminder is often all that’s needed. And, as a first measure, it will help you recoup the amount you’re owed and mean you don’t have to escalate things even further.

In conversation with them, you could also talk about how financing or making a payment plan could help. Of course, if delays are ongoing, you’ll need to be more frank… which takes us to option 2

2. If work is still ongoing, hold the job hostage.

This is a simple but effective solution if a customer is refusing or forgetting to pay you.

Holding a job hostage will likely get you paid faster because it puts pressure on the customer. After all, they won’t want to have a half-finished job on their hands.

While this can be considered an aggressive tactic, we would recommend that you raise the issue with your customer first before you simply stop work altogether.

If the issue persists, you may be within your rights to stop until you have your money.

In more extreme cases, it can be wiser to cut your losses altogether, though we’ll touch on that below. After all, if the customer refuses to pay you, you won’t want to keep digging yourself into a financial hole.

3. Write a demand letter.

PAYMENT DUE!

A scary letterhead can inspire a customer to cough up the cash. However, there’s more to these letters than bold red writing.  

In your letter, be sure to include:

• The name and address of both your business and the non-paying customer.
• How much is owed. A clear statement of the debt, so there’s no confusion.
• The full details of the situation: Work completed, contracts signed, payments already made, any attempts you’ve made to collect already, etc.
• The legal basis for your claim—in other words, why does the customer legally owe you the outstanding amount?
• What steps you’ll take next if they don’t pay i.e. mention of a debt collection agency and debt recovery could be valid.
• Dated copies of all of the paperwork involved.

Use a mailing option where the customer has to sign when they receive the letter, so you can be sure they got it.

4. Don’t name and shame the customer.

When a customer refuses to pay, it’s tempting to post the details on social media so you can name and shame. It might momentarily feel good, but in the long term, that gut reaction can be costly.

Here’s why:

• It could be illegal. “The Office of Fair Trading advises against using social networks to pursue debts—and warns that doing so could be seen as harassment of the customer,” according to an article on the My Credit Controllers website.
• You could be sued by the customer for defamation.
• Prospects might be wary of working with a plumber who uses shaming tactics to get paid.

Instead of venting on Facebook when a customer refuses to pay, use the tips we’ve suggested—and if it comes down to it, take the step below.

Keep interactions between your business and the customer. If things escalate, the only third party you should involved is a debt collector (see below).

5. Take legal action and call in the collectors.

If non-payment of an invoice persists, it’s clear that the customer has zero intention of paying up.

If the outstanding amount is significant, it can be worth it to call a debt collector.

You could have a debt collector under contract to handle all your payment needs, but you can also hire them to chase after individual late payments, too.

For example, My Credit Controllers has an unpaid invoice collection service. 

If you do decide to take it further by going to court, there’s some great advice on small claims court you can explore, too.

It may sound extreme, but if you have signed agreements and have completed your side of the deal, you’re within your rights to get paid.

6. Let the lost payment go.

Of course, not everything is worth chasing. The worst-case scenario is that despite all your efforts, nothing has changed. You could escalate things further (like above) but you need to stop and think…

Work out if it’s worth the time, money, and hassle to go the legal route to collect the debt.

If you’re owed a huge sum, it might be, but it’s not cheap to chase payments through the courts.

You also have to wonder if it’s worth the time and energy, as that’s effort you could put into working with good customers, elsewhere.

It’ll be rare you’ll need to do this, but sometimes, it’s best to cut your losses.

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Learn more, earn more.

Preventative action can play a huge role in helping you handle non-paying customers.

Ultimately, it comes down to making your customer journeys as frictionless as possible and using tools that make life easier for everyone.

Discover Commusoft: you’ll find our payment, invoicing, and job-tracking solutions will work wonders, allowing you to start transforming your customer journeys, today!