Client Won’t Pay – How to Handle Clients Who Refuse to Pay Their Bills

All businesses have at one point or another experienced the customer/client that will not (or cannot) pay their bill.

These outstanding accounts can make it very difficult for a company to know what to do. There are a few strategies that can help before engaging in a business transaction with a customer/client; these often become the responsibility of the company bookkeeper and accounting staff.

Collecting on accounts receivable and knowing how to manage them properly is the key. The actions that can help to avoid a “refusal-to-pay” situation include:

Screening customers
– be sure to ask them about the size of transactions they have previously been engaged and how long they have been in business.

References
– if the customer is a business, you may wish to ask for references to determine their credibility and their past record of paying their obligations.

Deposits
– if the customer is an individual or business, ask for partial payment upfront. If they are serious about the engaging your business, they will agree. The
amount of the deposit may be as little as 5% – it is just used to show good faith on the part of the customer.

Set credit limits
– if the customer is a business, then explain if there is credit that can be extended to them. If there is no credit allowed, make this known to also and
put it into a contract.

Sign a contract
– whether the customer/client is a business or individual, consider the use of a contract. Of course this depends on the type of business that is being
agreed to and the scope and amount of goods and/or services that are being transacted. It may be good to seek legal advice about this matter if in doubt.

Monthly statements
– send the customer a monthly statement to remind them of the outstanding bill. A letter with the statement may also be appropriate. Just be sure to keep
it cordial and diplomatic as you want to encourage them to pay – not to ignore it!

Call customers

– some customers respond best to phone calls. That way a direct reply can often be obtained and you can determine what their intentions are. Be sure to behave in a civil and non-aggressive manner.

Even with the above strategies, there will still be times when a bill becomes uncollectible. Then the next phase of strategy should be in place as you still will not be able to collect on delinquent accounts.

The final course of action is to seek legal help to determine if the outstanding amounts are worth pursuing in a court of law. A good lawyer will advise if the amount is large enough to chase after and if the legal costs will outweigh the collection of the bill. Also, sometimes just a quick notification on a lawyer’s stationery will spur the default client into paying immediately – so discuss this option with your legal advisor.

The last resort is to write off the bad debt. Most tax systems allow for bad debt to be written off as a business expense. Be sure to not deal with this customer again and learn from the experience about dealing with people.

Furthermore, put immediately into place the strategies as outlined in the previous part of this article.

Would you like help setting up an accounts receivable client policy?

Email us at info@birdseyeaccounting.ca

Call us at 780 – 901 – 9494

Leave a Reply

Your email address will not be published. Required fields are marked *