6.3K members online now
6.3K members online now
Welcome to the Official Google Partners - North America Community
Read the latest articles and tips from Partners Experts and the Google team on growing your business, managing your agency and getting the most out of your AdWords accounts
star_border
Participant ✭ ☆ ☆

5 Tips How to Deal with Clients Who Refuse to Pay

5 Tips How to Deal with Clients Who Refuse to Pay


We’ve all been there. In the uncomfortable situation of having to deal with a client who refuses to pay for services rendered. Should you email? Should you call a personal cell phone? Should you hire a collection agency? Should you retain a lawyer? Here’s my guide to dealing with clients who refuse to pay.

 

1. Figure out the Customer Lifetime Value

 

Are you talking to a new client? Or a client that has paid on time for the last 12 months? What is the expected life time value of the client? Is the client likely to provide you future referrals? It’s a daunting task, assigning a lifetime value of the client.

 

Luckily there is a term called customer lifetime value (CLV). It is largely used in e-commerce, but it’s applicable here. CLV is the sum of the gross profit from all historic purchases for an individual customer.

 

Consider the average order value, repeat purchase rate, and the customer acquisition cost.
This is a great website to help do so : http://customerlifetimevalue.co/

 

2. Always have a Contract

 

Never begin work without a written contract. This includes family and friends. There are many contract templates available online with a simple google search. Using a contract shows clients you are serious and this is your business not your hobby. It creates a different mindset in the client as well as yourself.

 

The contract should have the basic skeleton :

Confidential Information
Cost of Services
Services
Party Relationship
Billing Procedure
Termination Terms
Consumer Privacy
Indemnification
General Provisions

 

3. Call Text Email

 

Collection agencies and lawyers are expensive. Call, text and email the client before spending money to collect money. Here are my favorite tactics.

 

Send a statement and circle the past due date in red ink.
Send a handwritten note on a statement or invoice.
Call Call Call.
Tell the client you have large bills due and you’d appreciate payment.
Visit your customer in person.
Send a demand letter.

 

The key is to follow up and be consistent. Annoying is good.

 

4. Create a Payment Procedure for the Future.

 

The best medicine is prevention. This is my payment procedure :

 

Send an invoice and credit card authorization.
When payment is past due, send client the invoice again.
Call the client if they still haven’t responded.
If the client says they are in a financial bind, ask for a post dated check.
Offer the client a payment program.
Have an attorney send a demand letter.
Involve a collection agency.

 

5. Attorney and Collection Agencies

 

Attorneys are expensive and they charge by the hour. The best way to use an attorney is to have them draft a demand letter and send it. This should cost about an hour of billable work. Demand letters threaten the client with legal action. In my personal opinion, beyond the demand letter, attorneys are too expensive to involve. I speak as an attorney. At my former agency our attorney cost $800 an hour.

 

Collection agencies are a cheaper solution but you have to do research. Make sure to verify the agency’s legitimacy and practices. Consider where the agency is located. Ask whether the fee is a flat fee or a contingency. A flat fee is a straight forward cost while a contingency fee is paid when the collection agency collects. Typical contingency fees range from 25% to 45% of the amount for collection.


*In summary, collecting money from clients is taxing. Don’t let a bad experience taint future interactions with new and existing clients. Remember, always smile.

Comments
monu s
October 2016
What is financial administration?
Terry E L
October 2016

I usually will use Google search for questions such as "What is financial administration?"

 

Here is what was at the top of the results...

 

Financial administration is a vital part of business because it is concerned with an organization's resources. A financial administrator is responsible for managing the accounts receivables and payables of the organization.

 

Hope this helps monu s

Labels