What to do when your customer won't pay their bill
A large unpaid invoice can cause your small business serious harm.
Bad debts are a part of business life. But a large unpaid invoice can cause your small business serious harm; in some cases, it can mean the difference between staying afloat and closing your doors.
Keep in mind it’s typical for an invoice to age 30, 60 and even 90 days. Anything beyond that length of time may indicate your customer is experiencing financial hardship or about to go bankrupt. Debts outstanding for that duration deserve your personal attention.
Here’s what you can do to try to collect your money.
Unfortunately, it's often too easy for a non-paying customer to shrug off their debt obligation with the line, ‘It's business, not personal.’ By getting personal you might just increase your chances of being paid.
Do whatever you can to put a human face to the debt. Explain to your customer that the money owed is important to you and your small business – that you’re not a large company with barrels of extra cash. Send a personal email instead of a past due notice. Emphasize the trust you placed in your customer when both of you agreed to do business together.
Stay calm when you discuss the situation and offer to come up with a payment plan. Be sure to keep a record of your emails and phone calls in case your customer still refuses to honour your agreement.
If the situation won't permit your personal involvement or your customer still won't pay, consider hiring professional collectors.
These experts are paid to get your money so they know which tactics work, and many cater to small businesses. Some agencies charge a fee for any funds collected on your behalf, others may buy the debt from you for cents on the dollar.
In Canada, there are strict rules in place around debt collection that are unique to each province and territory. For example, practices such as calling a debtor each day or using threatening language may be illegal in some jurisdictions. Debt collection agencies are well-versed in the law and can help your business to avoid accusations of harassment or illegal collections practices.
In some cases you’ll do everything you can and a customer still won't pay you. Consider these alternate compensation scenarios for delinquent payers:
In the future you can try to debt-proof your business by being proactive with your receivables. Invoice promptly and follow up before an invoice is due. When it comes to receiving timely payment it's always better to act sooner rather than later. Although most business owners dread dealing with late invoices, the more aged a receivable becomes, the more difficult it will likely be to collect it.