Ask Andi: We have an unusually high amount of business write-offs. It’s been increasing with the small accounts, where we used to get paid 100%. We’ve always had some amount of write-offs with our bigger clients. Every time we give money back, even on a small job – there goes profits. Any suggestions?
Thoughts of the Day: When it comes to business write-offs, make sure it’s a payment problem. Set expectations, and follow through with non-paying clients. Make sure you have leverage. Keep your cool.
Business write-offs of unpaid invoices
Figure out the source of the problem. Do customers react in surprise to invoices, question the value of what they received, lack the ability to pay, or just plain renege on the deal? Each situation requires its own solution.
Going into an agreement, it’s important to be clear about what things cost. Unexpected expenses can easily lead to a shortfall in payments. Start with a complete written estimate. Use change order forms to communicate cost increases. Discuss all costs and payment terms before you begin. Get customer sign-off before work takes place.
Misunderstood payment terms can also lead to delays. Put your payment terms in writing. Email them over to the customer with a return receipt. Ask the customer to initial and send it back. That way you both know what you agreed to.
Check if you have a quality problem. Survey recent customers to verify that they were satisfied with what they bought. Pay close attention to any indications of problems. If customers are unhappy with what was delivered, they will likely renegotiate by sending in less than full payment.
How to handle non-paying clients
Some customers will have the best of intentions and then run into problems. Other customers intended from the get-go to flout the agreement about what would be paid, when. Either way, it’s important to have leverage and be willing to use it. Reduce business write-offs.
Make final payment due before all of the service or product is turned over to the customer. If the customer wants to delay payment until they are satisfied, set up an escrow account. Make sure that “acceptance” standards are in writing, and there’s a set timeline for approval and release of escrow.
When payment isn’t forthcoming, treat the situation with respect and professionalism. You may be boiling over, and ready to sling four-letter words at the client, but that’s not likely to accomplish anything. Stow it.
Make a call to the accounting department. Make sure they have a copy of the invoice. If they don’t, email one with a return receipt. Follow up with a phone call to make sure it’s received.
Ask about payment sign-offs. If someone has to sign off before accounting can take over, find out who that is. Follow up with them directly.
Improve collections, prevent non-payment
When anyone in the approval chain starts asking about discounts, don’t be in a hurry to cave in. The customer may just be asking. Know what is a reasonable fee for your product or service, and stick to your guns when pressured. If it’s after the fact, refer to written, signed documents as evidence of what’s due.
Be ready to state the actions you will take to receive payments. You can stop all future work. You can escalate the invoice through the buyer’s company. Know how to publicize that the company is a late- or non-payer. Refer old invoices to professional collections. Follow up until you receive the money you’re owed. Reduce business write-offs.
Evaluate every customer once the account is settled. Did they pay on time, in full? Go after more work with reliable payers. Think twice about continuing with customers who challenge every invoice, who refuse to pay the last % due, or who otherwise try to break the terms of your agreement. No matter how big the customer, if they don’t pay, they’re not that valuable.
Check references before starting work. Find out if other vendors are getting paid on time, in full. If there’s any question, set up backup financial instruments, such as a credit card or third-party leasing. Let the professionals handle the problem accounts.
Looking for a good book? Collections Made Easy: Fast, Efficient, Proven Techniques to Get Cash From Your Customers, by Carol S. Frischer.
