Professionally or personally, no one likes to be owed money. Unfortunately, being owed money is part of being in business. According to a study by U.S. Bank, on average, small businesses are owed $84,000 by other businesses! When a friend owes you money, it’s painful. Deciding what to do can be difficult, but there are rarely wrong answers. But when your business is owed money it can turn into a life or death situation for the business, and there are plenty of wrong answers.
Knowing the Problem
As a business, your first step is to understand why the company isn’t paying the bill. Do they believe that they do not owe you money either because of the quality or timing of the work? Is there a communication or staffing problem? Is the company having a financial crisis? If an invoice is going unpaid, especially from a formerly reliable client, you need to call and get an explanation. When an invoice is a day or two late, you should send a reminder email and follow up with a phone call after a week. This may seem sudden, but when you routinely allow people to pay you late, it makes it more difficult to detect a problem when there is one.
It’s unlikely that your main contact in Accounts Payable, or on the project, will be able or willing to explain a financial problem with the company. If you believe there is a larger problem, you should speak with someone at the company who is qualified and able to share details. Hopefully, before you began doing business with the company you had them fill out a credit application that included contact information for executives. There are many online resources for creating useful credit applications and contracts.
They Don’t Want to Pay: Don’t Make a Deal
Just like people, businesses often try to get out of paying bills that they know they owe. Sometimes, there is a dispute about the terms of an agreement, but frequently, companies simply try and avoid paying bills or put off paying bills as long as possible. To avoid this, it’s important to make sure that your contract terms are clear. If you are providing services such as marketing it is especially important that your contract does not guarantee specific results. If you believe you are owed money that the client is not paying, simply because they do not want to pay, you should not attempt to make a deal on the invoice on your own. Turning the case over to a collection agency will save you time and will probably result in you receiving more of the amount owed.
Bankruptcy: Don’t Make a Deal on Your Own
Sometimes you have to make a deal, but that doesn’t mean you should do it on your own. If the company is about to close or go bankrupt, making a deal to accept less money may be your only choice for getting paid. Once a company goes into bankruptcy, there are legal rules about who gets paid first, and your company may not be at the top of the list. You should consider using a lawyer or collection agency to help you make the best possible deal before the company declares bankruptcy.
Temporary Problems: Maybe Make a Deal
You know your clients. If you have a good client who you think is experiencing a temporary cash flow problem that they will turn around, you may want to make a deal. Making a deal can strengthen your relationship and their loyalty … if they turn it around. It’s one thing to plan a financial recovery, it’s another to actually pull it off. You might consider negotiating a new payment date with fees and interest. If you are making this kind of deal with a company, you are lending them money. Do not lend more than you can afford, and do not lend money to any company that you think is a bad credit risk. By agreeing to wait to be paid you may wind up losing the brief period of time in which you could be paid.
Being owed money is frustrating and emotional. It can be difficult to decide the best way to handle the debt. You want to choose a solution that is realistic and nets you as much of the money owed as possible. Most people simply do not have the legal or professional expertise to know when making a deal is and isn’t a good idea, and what kind of deal is best to make. If you have a client who owes you money, hiring a lawyer or collection agency to help you decide may save you money in the long run.