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Sorry, we’re not paying you

In business, bad payers are an unfortunate fact of life and most of us will end up with a collection of excuses from deadbeat customers who don’t pay their bills.

Along with the downright strange is the quasi-legal; “your tax file number is in the wrong format, so we can’t pay your invoice” is one of the better excuses I heard in the years of running my business.

“I gave your technician a cup of coffee while she was here, so you’ll have to give me a credit” was another great claim.

A teacher once threatened to report my business to her union on the basis we were exploiting low paid women workers. The funny thing was we’d cut her a big discount because I realised she’d struggle to pay the full rate.

Big boy excuses

The corporate sector can be just as bad, some treat their suppliers as banks who give them an interest free loan.

One multinational suffering cash flow problems decided to pay all bills after 270 days, regardless of the agreed payment terms. It didn’t bother with excuses and the accounts team was blunt – if suppliers didn’t like it, they could sue and wait five years for their money.

Don’t delay – chase

A truism with collecting debts is the longer we let them slide, the less likely it is they will be paid so we have to be on the ball in chasing those late payers.

In Xero you nominate the due date when creating the invoice and this will appear on the copy the customer receives. As soon as the due date has passed without payment, follow up with a reminder or a phone call. It’s best to talk to late payers as this shows you are serious about getting paid.

Identify problem customers

The good thing about late payments is it’s a pretty reliable guide to who is a bad customer – if they constantly pay bills late, then you don’t need them in your business life and it’s time to get rid of them.

More insidious is the good client gone bad – a previously good payer who suddenly starts making excuses could be in financial trouble. If so, it’s worthwhile making sure your business isn’t too exposed if that client suddenly goes under.

With one client the secretary insisted on paying most of our bill out of petty cash. Two weeks later the company, a Scotch whisky broking service, closed shop and left thousands of angry customers and suppliers out of pocket. It took the creditors ten years to get a fraction of their money back and the secretary did us a great favour.

Not every late payer is a bad guy though, even in the best of times good customers can hit a bad patch so making arrangements with them can be a good long term strategy.

What are the best stories you’ve heard from deadbeat customers?

Paul is a leading expert in online business and is based in Australia where he is well known as a broadcaster, speaker and author of seven books, including eBusiness, Seven Steps To Online Success. His Future of Business website looks at Internet trends like social media, cloud computing and other web technologies that are changing our industries. 

 

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10 comments

Leonie Smith
21 November 2011 #

Thanks for post Paul as a new buisness owner what are your thoughts on keeping just one last piece of the puzzle untill final payment is it possible to do this wihout creating Ill will. Final copy or taking down the under construction sign ect…

Andrew Haynes
21 November 2011 #

Hi Paul, great post!

Getting paid is the most important part of the cycle and it’s easy to switch off once the first part of the job is done.

Reminded me of talk Mike Monterio gave at San Francisco Creative Mornings entitled “F*ck You. Pay me.” I watched it on Vimeo a while back.

A little crass but good advice. Worth watching – http://vimeo.com/22053820

Wayde Christie
21 November 2011 #

Good article. I’d still very much like Xero to remind me that invoices are due. An email and notification in the app would be great. As would an iCal calendar (or similar) for due dates.

Jeremy Harris
21 November 2011 #

Thanks for this post, Paul. Very topical advice for small businesses.

I find that the most frustrating excuse is – “I don’t remember receiving that one. Can you send me a copy?” I find that I can usually tell if it’s genuine or just a delaying tactic, just by whether its a one-off or repetitive behaviour.

It’s important that the collection of money be managed and systemised. And it’s critical that a business be able to predict and plan its cash coming in and going out.

A good accounting system will:-
– record the date that you send invoices and reminders to customers/clients; and
– let you nominate expected dates for receiving and paying money, easily changeable if it is agreed to stretch out the time a bit from the original due date.

Paul Wallbank
21 November 2011 #

It’s a great clip. I’d recommend it for every freelancer and small business owner.

Another one, with just as bad language, is Harlan Ellison’s Pay The Writer.

http://www.youtube.com/watch?v=mj5IV23g-fE

While Harlan’s emphasis is on creatives, his points apply to any service provider.

Henry Dillon
29 November 2011 #

Great article. A few tips that I’ve picked up:
Let someone else do the accounts chasing for you. This lets them be the bad cop and be as forceful as appropriate. It’s difficult to switch from nice friendly sales mode to where’s-our-money mode. Having someone else be the bad cop lets you remain as the good cop.

Follow up immediately after an expected payment date has lapsed. Never let this slide otherwise you’re giving the customer slack. Get a new date and follow up on the new date.

In the UK, there is a brilliant product called Duedil. Its a free service that lets you follow any uk or irish company. It’s amazing the info you can get. By using this you’ll get early notification of any ccj’s or other red flags about a company that might effect your relationship. It’s been a real asset for us.

The creative deadbeat
3 December 2011 #

[...] post originally appeared on the Xero Accounting blog under the title “Sorry, we’re not paying [...]

Paul Wallbank
4 December 2011 #

Hi Leonie,

It a great idea to ask for a deposit or a large proportion of the contract amount up front. That usually separates the deadbeats from the good clients straight away.

Having a payment schedule with actions and milestones associated with it is good project management. Sadly many businesses don’t provide the services that allow for that.

[...] read an interesting article on the Xero Blog posted by Paul Wallbank, a leading online business expert based in Australia. The topic was on [...]

Lisa Gary
7 December 2011 #

Excellent post paul. This post will more helpful for small business owners

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