What to do when customers can’t or won’t pay you
Stay in a service based industry long enough and you will eventually run into a situation where your customer can’t, or won’t, pay you. It’s an unfortunate reality and causes a lot of stress for you, your business and your client.
As we head deeper in to uncertain times, it is becoming increasingly likely that you will run into a scenario where invoices are over due.
With managed services or IT consulting engagements, you should already have a contract with your customer. For the break/fix side of the house, you should have one along with a set of written policies prominently posted that clearly state what happens if your customer won’t or can’t pay. Regardless of your business model, it’s simply a reality that you’ll run into these situations.
What do you do?
First of all, understand that there are two different scenarios: First, where your customer refuses to pay, and second, where they can’t.
Before we begin, there is one very important thing that needs to be stressed that no matter what, you need a contract. This seems obvious but you would be surprised at how many people neglect to put some sort of contract in place.
An easy way to get customers to sign off on your contract, especially for break/fix, is to add one into Instant Housecall. When you configure your Terms of Service, they’ll be shown to your customer before any remote support session starts.
Be clear about the scope of work
Ensure that you are clear about the scope of work you will be providing as well as the following key components:
- Compensation and payment terms:
Be clear about what your client will owe you for the work provided, how you will invoice them and when that invoice needs to be paid. For break/fix clients, this will typically be done at the time of sale. If you configure your online shopping cart in Instant Housecall, you’ll be able to accept payment immediately.
- Refund Policy:
Sometimes, clients will be unhappy with the work that you have done. Hopefully this doesn’t happen, but you should always be prepared in case it does. Be clear on what your refund procedure is, and how much of your service fee is refundable, if any.
- Failure to comply:
Clearly outline what happens if your customer doesn’t pay. This helps avoid the ‘well, I didn’t know’ argument and also gives you some support when and if you need to put these steps into motion.
When a customer misses a payment, it is first and foremost important to figure out where your client is coming from so that you can handle the situation appropriately. Are they unable to pay, unhappy with the service or simply won’t pay? The answer to that question determines how to handle the situation.
Clients who are unable to pay
Let’s face it, this scenario is hard for everyone involved. In times like these, businesses have found themselves unexpectedly closed and without income, which for small businesses, can mean making the choice between making rent, or eating dinner. While this doesn’t make your situation any better, because hey, you rely on income as well – it does change how you handle the situation. It is important to not burn any bridges here.
First off, empathize. This can make the difference between a customer committing to paying you later and ghosting you completely. Especially now, we need to get a little creative in how we do business. If this is the first time that this customer has been unable to pay, sympathize and try to find a solution where they can pay you in the future. Ask if they can pay in installments. Come up with a system that works for both of you – consider pausing their service and working out a payment plan a few months from now.
Handling this situation with grace will ensure that this client has only great things to say about you and may lead to more clients in the future.
Next up, the client who is ‘unhappy’ with your services
In this situation you need to do a little investigating. Are they actually unhappy, or are they simply trying to get out of paying you? Either way, it sucks, but something that you will have to deal with.
First, find out what they are unhappy with. Begin with open and kind communication so that your client isn’t immediately on the defensive. Oftentimes, it is something minor that can easily be fixed or explained and you can both get on with your businesses. However, if your client is saying they are unhappy as a means to avoid paying you that is a different story. In these scenarios, it is best to discuss the refund policy that is clearly outlined in that contract you both signed (remember?).
If the problem persists or your client is constantly saying they are unhappy with your work, finish your contract and ‘fire’ them. Or, if they are really bad, provide the refund, cut your losses and move on. A client that is that much of a headache is not worth your time or effort trying to keep happy.
Lastly, what happens if a customer flat out refuses to pay?
Begin by reminding them about the terms of your contract: the agreed up scope of work, the terms of payment and your refund policy (if applicable). It may also help to attach the contract to the email for reference. Oftentimes this is enough to nudge them into paying. However sometimes clients can double down on the refusal or even get outright hostile. These people suck.
While the situation is stressful, you will get through it. Start by deciding in advance on how many follow up emails you will send – I suggest no more than two after your initial reminder of the contract. Also, from this point on, only communicate via email, to ensure that there is a paper trail.
In each follow up email, outline the dates you previously spoke, and what was discussed e.g as per my email on March 11, 2020– as well as clearly outlining what the next steps are, we expect your full payment by June 1, 2020 or we will be terminating your services.
Hopefully this is enough to get the payments rolling again but if all else fails, you can employ the help of a collections agency. While this may seem like a bit of overkill, at some point you may need to cut your losses and hand things off to the professionals. A word of caution on collection agencies: they may not succeed at collecting the debt, but they will most certainly succeed at upsetting your customer. Keep this in mind, especially if you travel in similar circles to your customers, or if they are apt to leave online reviews.
Decide what your time is worth and do not spend a second more than you have to chasing down people who refuse to pay you for your time. Unfortunately, it is sometimes more cost effective to cut your losses than to continue dealing with these clients.
Yes, of course you can sue your (former) client. But the small claims process is a long and painful process. Even getting a judgement doesn’t mean that you’ll ever see a penny from your customer. Unless it’s a very substantial sum of money, it’s probably not worth your time.
Handling customers that won’t pay is an unfortunate part being in a service based business. Having clear guidelines set in place on how you will handle the situation as well as how you will escalate if necessary will set your future-self up for success so you can spend your valuable time on important things.
If you’re looking for remote support software that has features perfect for small businesses like Terms and Conditions your customers will sign off on before a session starts and the ability to accept online payment, give instant Housecall a try.