What to do when a customer will not pay

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    Payments

    What to do when a customer will not pay

    No one likes to deal with late payments, but unfortunately, it is something that every business has to face at some point.

    When a customer refuses to pay their bill, it can be frustrating and stressful. Not only do you have to worry about how you are going to get your money back, but you also have to worry about the impact this will have on your accounts receivables.

    The good news is that there are things you can do to try and collect payment from a late-paying customer.

    In this blog post, we will give you some tips on what to do when a customer will not pay by breaking the situation down into three easy-to-understand, easy-to-action segments.

     

    Opening communication and gathering information

    Once your invoice has passed its payment deadline, the first thing you should do is reach out to your customer.

    You can do this via email payment reminders, speaking to customers about payments over the phone, sending payment reminders via SMS text messages, or even social media. The important thing is that you try to open up a line of communication as soon as possible.

    When reaching out, be sure to be polite and professional when asking for payment. After all, there could be a perfectly good reason why your customer has not paid yet.

    Try to gather as much information as you can from your customer. Find out if they received the invoice when they expect to be able to pay, and if there are any issues that are preventing them from paying on time.

    Documenting everything at this stage is an excellent idea. You can use this documentation later on if you need to take further action.

    It's worth remembering that, especially with smaller businesses, that you might be dealing with someone who cannot pay their bill because of cash flow issues outside of their control. In this case, being understanding and working with them to come up with a best solution is best for both parties.

    No one likes being behind on their bills, and being understanding will usually result in the customer doing their best to rectify the situation as soon as possible.

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    Admitting that you cannot pay for an invoice is embarrassing for some people, and going in with all guns blazing will normally just make the situation worse.

     

    Actions to take:

    •     Reach out to the customer to open a line of communication
    •     Gather information to understand their current situation
    •     Offer a solution that works for both parties
    •     Document every interaction

     

    What not to do:

    •     Don’t be confrontational
    •     Don’t make assumptions
    •     Don’t threaten legal action immediately


    Coming to a compromise

    Once you have a fuller understanding of the customer’s financial situation, you can begin to work out a compromise. This may involve offering them a payment plan or extending the due date on their invoice.

    It’s important to remember that every customer is different, so there is no one-size-fits-all solution when it comes to payment options. Some of the options you can offer include:

    •     Allowing the customer to make smaller, more frequent payments - this can make it easier for them to keep up with their payments and avoid falling behind again. When creating a payment plan, make sure to outline all the terms and conditions as well as what will happen if they default on the plan.

    •     Giving the customer a grace period - this is usually a set period of time (e.g. 30 days) during which they can make their payment without incurring any penalties or late payment fees. This allows them some leeway in case they have a temporary setback or something comes up that prevents them from making their payment on time.

    •     Accepting alternative forms of payment - if the customer is unable to pay by check or credit card, you may be able to work out a different arrangement such as allowing them to pay with cash or through an online service such as PayPal.

     Whatever solution you decide on, be sure to document it in writing and get the customer’s agreement. This will help to avoid any misunderstandings down the road.

     

     Actions to take:

    •     Work with the customer to come up with a solution that is mutually beneficial and agreeable
    •     Document the agreement in writing
    •     Ensure that both parties understand and agree to the terms of the arrangement

     

    What not to do:

    •     Do not agree to any terms that you are not comfortable with
    •     Do not make any promises that you cannot keep
    •     Do not put yourself in a position where you could get taken advantage of financially. Be sure to protect yourself and your business by only agreeing to terms that are fair and reasonable.

    Escalating the situation

    Most late payment issues can be dealt with using the steps above. However, there are times when you may need to escalate the situation. Sometimes the customer will simply not respond to your attempts to contact them or work out a payment plan.

    If the customer is still not responding to your attempts to contact them or work out a payment plan, you may need to send them a formal notice of default. This document spells out the terms of the original agreement and states that the customer is in breach of the contract.

    It also outlines the actions you will take if the customer does not pay, up to and including legal action. Sending a formal notice of default is often enough to get the customer to start working with you to find a solution.

    When sending a formal notice of default, it is important to include all of the relevant information about the original agreement and the customer's failure to pay. This will give the customer a clear understanding of the situation and what they need to do to remedy it.

    Levying late payment interest

    One option is to start charging the customer interest on their outstanding balance. This is known as "levying late payment interest."

    The amount of interest you can charge is governed by UK law. The rate is set at eight per cent above the Bank of England's base rate.

    You can start charging interest from the date the payment was due, not the date you sent the notice of default. However, you must give the customer at least seven days' notice before you start charging interest. This notice can be included with your formal notice of default.

    You can also charge for the resources you've used to try to get the payment, such as making phone calls or sending letters.

    This is known as "reasonable recovery costs." The amount you can charge is governed by UK law and is limited to £40 plus VAT for each debt. You can only start charging reasonable recovery costs after you've sent a notice of default and the customer has failed to respond within 30 days.

    The problems and potential of debt collection

    When it comes to escalating a debt to a collections agency, there are potential positives and negatives to consider.

    On the one hand, using an outside agency can free up your time to focus on other aspects of your business. And, if the agency is successful in collecting payment, you'll receive the money owed to you plus any interest or fees that were specified in your original contract with the debtor.

    However, there's also the chance that working with the wrong collections agency could damage your relationship with the debtor. In some cases, it might even make it harder for you to collect payment. 

    Before making the decision to hand over your unpaid invoices to a collections agency, be sure to weigh the pros and cons. Doing so will help you determine whether or not working with a collections agency is the right choice for your business.

    The good news is that there is a more modern alternative to traditional collection agencies.

    Chaser's professional debt collection services are designed to help businesses recoup their unpaid invoices quickly and efficiently, without damaging relationships with customers.

    Instead of threatening or harassing your customers, our team of expert debt collectors will work with them to come up with a payment plan that works for both parties.

    If you're interested in learning more about how we can help you collect your unpaid invoices, get in touch with us today. We'd be happy to answer any questions you have.

    Actions to take:

    •     If you're struggling to collect payments from customers, it may be time to consider using professional debt collection services from a reputable supplier
    •     When looking for a debt collection agency, it's important to choose one that will work with you and your customers to find a solution that works for everyone

     

    What not to do:

    •     Don't hire a debt collection agency that will harass your customers and damage your customer relationships
    •     Don't choose an agency that doesn't have experience working with businesses like yours
    •     Don't pick an agency that doesn't have a good reputation

    Taking preventative steps in the future

    Taking preventative steps to avoid future invoices going unpaid is always a good idea. While it's impossible to completely eliminate the risk of non-payment, there are a few things you can do to minimise it.

     

    Credit checking

    One of the best things you can do is to be more selective about who you extend credit to by conducting credit checks. If a customer has a history of late payments, it's probably not worth extending them credit. The best way to find this out is to do regular credit checks on your customers.

    Chaser's credit checking feature is quick, easy, and can help you avoid extending credit to risky customers. With ongoing reports and automatic updates when customer risk levels change - you can reduce credit risk with up to date insights.

    Offering discounts for early payment

    Another way to incentivize timely payments is by offering early payment discounts. This gives customers an incentive to pay their invoices as quickly as possible.

    There are several ways to structure early payment discounts. For example, you could offer a discount of two per cent if the invoice is paid within ten days. Or, you could offer a discount of five per cent if the invoice is paid within thirty days.

    You'll have to decide what makes sense for your business and your customers. But offering early payment discounts is a great way to encourage timely payments.

    Sending reminders

    If you've extended credit to a customer and they're late on their payments, one thing you can do is send them invoice payment reminders.

    These reminders can be sent via email, regular mail, or even text message. They should be polite but firm, and include information about the outstanding balance and when it's due.

    Chaser's automated credit control software can help you send reminders and track payments.

    Have a credit policy in place

    You should also have a clear and concise credit control policy that you communicate to all of your customers. This policy should outline when payments are due, what the late payment penalties are, and what actions you'll take if an invoice remains unpaid.

    Enforcing your credit policy can be difficult, but it's important to do so if you want to avoid unpaid invoices. One way to enforce your policy is to set up automatic reminders for when payments are due. You can also withhold services or products until the invoice is paid.

    You should also have clear and concise payment terms that you communicate to your customers upfront. This will help ensure that there's no confusion about when an invoice is due and what the consequences are for late payment.

    Let Chaser help you with customers who won't pay 

    Chaser can automate your accounts receivables process and send personalised payment reminders to your customers automatically, saving you time and hassle.

    You can also keep track of all your outstanding invoices in one place, so you always know who owes your business money and how much. This makes it easy to follow up with late-paying customers and take action if necessary.

    Inbuilt tools in Chaser’s accounts receivables automation software such as the payment portal, automatic payment plans, and SMS payment reminders ensure you can reduce late payments and improve your cash flow with minimal time investment. 

    Try Chaser free for 14 days and see how we can help you get paid faster!

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