Tips on Collecting Late Payments

If you’re in business, chances are that you are having issues with slow or no paying customers. This is unfortunate because it creates waste of time, effort, and money from your business. The good news is that there are steps and best practices to help with this problem.

Preventive Maintenance:

  • Credit check: If the check is less than stellar, then get the money up front.
  • Get references: Not only get them, but check them!
  • Bill on time: Bill on time and at the same time each month. If you don’t bill on time, the perception is that you don’t care if you get paid or not.
  • Clear expectations: Have clear expectations of cost and payments and discuss these up front with your clients. These should be discussed in the first meeting. If there are warning signs, you should see them here.
  • Formalize an agreement: The initial discussions from the first meeting should be formalized in writing. This should list the services to be performed along with the specific dollar amount. It should list the terms of payment, including the payment you expect in advance.

What to do when you have late payments:

  • If your business does end up in a situation where the bill is past due, businesses should send collection letters at 30 days, 60 days, and 90 days past due. If all fails after 90 days, it is time to get legal help.
  • Use late payment fees: While it’s difficult to collect late payment fees, it is definitely a tool to get attention. These fees need to be meaningful enough to grab that attention and they should also be spelled out in the initial agreement.
  • Arbitration agreement: You should strongly consider an arbitration clause in your agreement. The advantages are to both parties in that it is typically less expensive to resolve and much quicker than compared to taking the court route.
  • Breach of the agreement: If your customer doesn’t pay, then they should be in breach of contract. This means that your obligation to perform may be waived pending your contract terms (so draft carefully). I.E. No warranty claims are going to be considered on a contract that is in default.
  • Golden Rule: Remember to treat people as you would want to be treated even if they do owe you money. Stay calm and professional and use the law to your advantage. It is best to distance yourself from the collection process if all possible. If a client calls you to complain, this separation allows you to maintain a different image in the mind of the client giving you a better opportunity at negotiating with the client.

Will Cartwright


phone: 615.473.1006