One of the most discouraging aspects of running a business is having to deal with customer non-payment. You pour your heart and soul into your business, provide excellent customer service, go the extra mile, but no payment arrives. You can avoid customer non-payment in the first place if you follow these simple guidelines:
Collect Payment Up Front
This is not a problem if you're selling products. Most people expect to pay first and then receive a shipment. Businesses that provide services find it hard to use the same concept. Also, customers want you to do the work first and then pay later. You can, however, imitate a product business by using a retainer or contract. You can ask the client to pay 25%, 50% or 100% up front upon signing the agreement. You and the customer might agree to keep the funds in escrow or you might keep it in your business bank account.
Some licensed professionals are required by the state to maintain a separate client trust account. Up front payments guarantee that you'll receive some or all of the payment for the work you do. You can send the client invoices showing your billable hours and credits from the upfront payments. You can choose to stop working until more money is sent to complete the job.
Keep in Contact
One good business practice that helps you avoid customer non-payment is keeping in contact with your client. You should email or call them with updates of your progress. When you do contact them, ask questions, answer their questions and ascertain whether they're satisfied with the work so far. Use the opportunity to build a relationship with them. It's much harder to not get paid by people who know, like and trust you.
Assess Ability to Pay Up Front
Screening customers may not sit well with you if this is your first experience working from home. However, one business rule that you should not break is this: Only do business with those who are willing and able to pay. There are many customers who are willing to do business with you, but fewer are actually able to pay. Those are the ones you have to target, or you'll end up requesting payment and getting no response. Getting upfront payment helps you to determine this. Knowing the reputation of the business or individual also helps. This takes research and you may need to ask others about their experiences with a client.
Don't Take Risks with Unproven Customers
It might make your day to receive a large order from a customer, but you're taking a huge risk if the customer hasn't done business with you before. If you're dealing with an unproven customer, start small first. For example, if you sell bulk food ingredients to families in your community and you have to order the foods before you collect payment, don't order a large amount for someone doing business with you for the first time. Tell them you're willing to order a small amount first to see how that goes, or get total payment up front first. Over time, those unproven customers may become proven and you can take more risks then.
Avoiding customer non-payment is important to your cash flow. Follow these guidelines, and you will improve your finances and customer relationships.
Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.