What to Do When Customers Refuse to Pay
What to Do When Customers Refuse to Pay
Providing work to customers without requiring full payment up front is common within the construction industry. Customers will often put a portion of the total job cost down and then pay the remaining after the job is completed. The construction industry is known for customers failing to pay the entire balance on time. While some may accept this as part of the business, there are ways to reduce slow paying customers and collect money from the customers who are severely late.
1. Invoice Earlier - Invoicing as soon as the job is completed is the best way to prevent late payments. If you decide to wait several days or even a week to send the first invoice then the customer may view the invoice with less urgency.
2. Late Fees - Make it clear in the contract that a late fee will be assessed at the agreed upon due date. This shows the customer that there are consequences for not taking care of the bill on time.
3. Communication - Customers rely on e-mail to get most billing notifications so obtaining a customer’s e-mail address before the job starts is recommended. The invoice can be easily sent via e-mail to the customer which makes it simple to send reminder e-mails as well when needed. Lastly, calling a customer to remind them of upcoming due dates is never a bad idea aswell.
The above tips will reduce the amount of late paying customers but it will not eliminate them. When a customer ignores e-mails and phone calls and the account falls further past due, hiring a collection agency to collect on the bill could be your best option.
Could a Collection Agency Help?
When customers are refusing to pay and have fallen more than 90 days past due then using a collection agency is recommended. Collection agencies will typically work with no fee required upfront and only keep a portion of the payment collected on your behalf. For example, a collection agency with construction experience may offer to collect the debt at a 20% contingency rate for a Plumbing company in Dublin. The agency successfully collects a €2,000 payment on the behalf of the Dublin plumber. As a result, the collection agency will keep €400 while the Dublin plumber will keep €1,600. This extra revenue can then be used to meet payroll, buy equipment, or spend on marketing to gain new customers. If the agency is unable to collect anything then nothing is owed. This takes the risk out of attempting to collect the debt.
Benefits of Pursing Past Due Customers
The main benefit of not giving up on collecting money from past due customers is hopefully the eventual revenue when the payment is collected. For tradesmen in the construction industry, the benefits go far beyond money.
Productivity - Spending time chasing after due payments while that time could be spent on marketing or completing more jobs hurts revenue. Allowing a collection agency to pursue the customers while you stay focused on the task that generates revenue is a smart move.
Accountability - Turning over a valued customer to a collection agency is not an easy decision but it sends a message that your company is serious. Sometimes hearing a different voice is enough to let the customer know they will not be let off the hook and that your company is not going to be taken advantage of.
Customer Retention - Sometimes customers fall on unexpected hard times but are still valuable customers. Naturally a business owner wants to avoid a customer that did not pay in the past. By a collection agency recovering a payment in a professional manner, the customer can still feel good about using the business in the future. Retaining the customer for a long term business relationship will equal more revenue in the future. The construction industry is hard work and ultra-competitive.
Hopefully these tips will help you avoid past due customers and give you a plan of action in the future if you do encounter clients who refuses to pay.
Author Bio: Luke McCann is the owner of CollectionAgencyMatch.com which helps small business
owners connect with collection agencies who can help them get paid.