How to get problem clients to pay

Do you have problem clients? This group includes clients that will not pay their invoices on time, or at all, or clients that will give you endless excuses before paying. Or my personal favorite: clients that don’t consider paying your invoices an important part of doing business.

Unfortunately, problem clients are part of being in business, but there are ways to handle them. I have managed an invoice financing company for the past six years, and have had to deal with our fair share of problem clients. Our ability to collect on our invoices has been close to 100 percent. We achieved this without getting angry, making empty threats, or doing any “collections” in the bad sense of the word. We followed a simple process, that I’d like to outline for you.

First, let’s divide problem payers in three different categories.
Category One: Clients that will pay in their sweet time.
Category Two: Clients that want to pay, but don’t have the cash-flow. Every company, regardless of size, will sometimes go through a cash-flow   crisis. Contrary to popular belief, these are not necessarily bad clients; they are just having a bad time.
Category Three: Clients that hate the concept of having to pay invoices.

The biggest mistake that small auto glass shops make when doing collections is treating all three types of customers the same way. Treating category one or category two customers like deadbeats will get you nowhere and certainly won’t get you paid quickly. Treating a category three client with anything other than resolute determination will also get you nowhere. The problem is it is hard to tell who is who.

You need a system that handles all three types of clients in a professional manner and boosts your collections. While I cannot guarantee success, if you follow these steps you are going to improve your collections dramatically.

Step one:  Start reporting clients to the commercial credit bureaus.

Commercial credit bureaus are one of the most valuable and underutilized resources in the auto glass community. As opposed to consumer credit reports, anyone can obtain a commercial credit report on any business with no special permissions. More importantly, anyone can contribute to the information on these reports. By sharing your payment information, you have the power to reward clients that pay quickly and punish clients that don’t pay. It empowers small businesses. You can share data with Dun & Bradstreet if you use Quicken or with Experian Commercial by going to the National Association of Credit Managers. To learn more about these reports, read my article “Cash Flow: Simple techniques to get paid on time regularly” on p. 42 of January/February 2006 AutoGlass magazine.

Step two: Let everyone know that you report data to the commercial credit bureaus.

People try to pay their credit cards on time because otherwise they risk ruining their credit report. It is similar with businesses. Their credit report can be affected if they pay late and the late payments are reported. Let me tell you a little story. As part of our services to our clients, we periodically send aging reports to customers. These reports show the age of all invoices and ones that are past due. We use it to let customers know where their invoices stand. Not too long ago, we added the following statement to the cover pages of the reports: “We report all trade experiences to commercial credit bureaus.”  We placed the statement in an inconspicuous location, not too obvious but not hidden either. This had an interesting effect: our clients started noticing that their customers’ payments were now coming on time, and in some instances ahead of schedule.

Step three: Get involved early, but be  flexible.

As soon as we notice a problem with an invoice, we call the customer to inquire if there is a problem. Most category-one and -two customers will be honest with you. If there is a problem, be flexible with the customers; assume that they probably want to pay. Ask for their opinions on how to solve this quickly, and when they think they will be able to pay. Follow up with a letter or e-mail confirming the details. This helps to establish a record. We are always polite and professional and thank clients for their cooperation. We do not use any threats, shouting or foul language; it is never required.

Step four: What if they miss the newly agreed payment date?

If our client’s payment is more than two days past the new payment date, we call to inquire about the status. This is where you need to start trusting your instincts. If they seem cooperative, try and work out a new payment agreement. However, if you make a concession and allow for a later payment date, ask for an immediate partial payment in return. In this business, concessions should come from both sides. If they don’t seem cooperative, move to the next step.

Step five: They are just not paying.

You will almost always get paid if you follow steps one through four. However, sometimes clients just don’t pay or don’t want to pay. If you have such a client, send the customer a letter indicating their default. We always use a subject of “Notice of Default and Intent of Action” in the letter.  That usually gets their attention. Describe the facts as you know them and let them know that they have defaulted in their payment. Advise the client that if they do not pay in 15 days you will refer the account to a collections agency. Always be polite and businesslike in your communications. Lastly, always offer them the ability to redeem themselves—by paying—and save face. However, if they don’t pay on the day that your letter stipulates, send a letter confirming that you will refer the matter to a collections agency. Use the name of the agency, but don’t include the phone or address. Wait five days before actually referring. Sometimes, customers get scared and pay. If they don’t follow through, use a collections agency. 

Final suggestions
Although getting paid by difficult clients can be a science, there is a lot of art that goes with it. You need to be able to evaluate the situation and determine if someone is making a bona fide offer or just buying time, and then act accordingly. You will be very successful in getting paid if you are methodical. Remember that in business the squeaky wheel gets the grease.