Milwaukee, Wis. – As a small business owner, avoiding the occasional unpaid invoice is nearly impossible. But you don’t need to accept this as a cost of doing business. These tips will help you prevent unpaid invoices and collect payment when necessary.
How to avoid unpaid invoices
- Research new clients. If you’re working with someone for the first time, do your research before you meet with them to find out if they have a reputation for paying on time. If you find reports online that they paid late or failed to pay, or if you notice fellow business owners refuse to work with them, avoid doing business with them in the first place. You can check out businesses on BBB.org.
- Provide estimates. You don’t want your clients to get hit with sticker shock and find they’re unable to afford your service after you’ve done the work. Always give clients an estimate with all the costs clearly outlined. Make sure the payment timeline is easy to understand too.
- Always get a signed contract. Whether or not you have a signed contract in place can determine your ability to take legal action if someone doesn’t pay you down the line. Don’t skip this vital step when doing business with someone, even if it’s someone you know and trust. Requiring people to sign a legal contract will help you attract reputable clients and avoid deadbeat ones.
- Require payment or a deposit upfront. One easy way to prevent unpaid debts is to require payment upfront or at least request a substantial deposit for your work. You can even offer incentives in the form of modest discounts for clients who choose to do so. If a new client is hesitant to pay you upfront, offer plenty of references for them to reach out to. This is where having a solid business reputation of your own will come in handy.
- Be transparent about your late payment policy. When your clients understand you’ll charge them additional fees or stop work on their project if they don’t pay on time, they’ll be less likely to fall behind on payments.
- Make prompt invoicing a priority. Send out your invoices right away. Not only is it the professional thing to do, but people are also more likely to pay quickly for a service that is fresh in their minds.
- Offer convenient payment options. Make it easy for people to pay you. This might mean offering online payments, sending a link to your payment portal, or accepting various payment methods. Consider what’s easiest for your clients as you set up different payment portals.
Handling overdue payments
- Make sure you’ve followed proper procedures. The last thing you want to do is send someone a late payment reminder only to find out you never sent an invoice in the first place. Make sure you’ve sent the initial invoice and any payment reminders.
- Send an automated reminder. Set up automatic reminders to inform your client when their payment is due and/or overdue. An automated message will be less embarrassing for your client and is often all that is needed to get them to pay.
- Try a polite follow-up. If your client hasn’t responded to your automated messages, it’s time to reach out with a polite follow-up message. Send them a more personal email letting them know you hope to continue doing business with them, but you’ll need to be able to count on their payments. Keep the tone friendly, and don’t jump to conclusions at this point. Your client may have a valid reason for not sending payment, or they may have simply forgotten.
- Reach out personally. If you still haven’t gotten a response, give your client a phone call or visit their place of business to speak with them. Ask your client why they haven’t paid, and be ready to listen. Once you understand the problem, you may be able to work out a solution that fits everyone’s needs.
- Offer a payment plan. Depending on how well you know the client, you may decide to offer them a payment plan. You might be able to extend the deadline or offer monthly payments that would replace a lump sum payment. If you suspect a client’s business is in financial trouble, keep payment plans short-term in hopes of collecting your money before they go bankrupt.
- Stop working for the client. If you haven’t already, suspend the work you’ve been doing for any client who hasn’t paid. Not only will this be an incentive for them to catch up on their debts, but it will also keep you from wasting any more time on a client who is habitual about late payments.
- If you need to escalate, check out these tips for collecting unpaid debts; this BBB article explores the pros and cons of hiring a collection agency, taking a client to small claims court and other options.
- If a client is routinely late in paying, create new rules for them. If you choose to keep working for your client after collecting their overdue payment, you should be ready to put new rules in place. You should require prepayment and/or more frequent payment milestones. Have a legal plan in place ahead of time as well, and make sure your client knows what action you are prepared to take.
For more information
Read BBB’s tips for collecting unpaid debts as a small business. For more help for small business owners, see BBB.org/SmallBusiness.
See BBB’s Accreditation Standards, and learn how to become a BBB Accredited Business.
