Your Next Life — Dealing with Delinquent Customers
Nov 17 2008
One of the attractions of being an independent consultant or operating a small business is the opportunity to manage a complete customer relationship. An important aspect of that customer relationship is managing accounts receivable. And even the best client list will include some customers who can’t get their bills paid in a reasonable amount of time — typically within 30 days of receiving an invoice. Moreover, the percentage of delinquent accounts likely is to increase, as some of your best customers suffer cash flow difficulties and reduced access to credit in this difficult economic environment.
Ironically, a recent headline in the business press observed that even debt-collection agencies are experiencing hard times because there’s little cash left to squeeze from strapped consumers. Accordingly, here are some ideas to help ensure your bills get paid.
• Provide shocking levels of customer service. Many consultants do a poor job documenting the work performed and the value they add for their clients. Make sure your output is quantified and reported to the customer at least weekly. If working remotely, look for opportunities to stay connected and ensure you’re immediately available during core business hours. When working with large organizations, get acquainted with the people responsible for paying bills. If asked to offer recommendations and ideas, avoid generalities and boilerplates. Give clients a product that offers succinct recommendations and exceeds their expectations, and you will maximize the likelihood of getting paid.
• Don’t let delinquent accounts linger. You should give a telephone follow-up within a week after an invoice has been unpaid for 30 days, and recognize that collecting overdue bills while maintaining good customer relationships requires deft people skills. The best approach: Start with the attitude that the client wants to pay, and try to identify why the account is delinquent. If a client is waiting for someone else to pay them, ask for copies of the relevant paperwork. Be ready to offer ideas to help clients find the money, such as tapping a personal credit card, line of credit, home equity loan, or even a pay-day lender.
• Don’t negotiate with yourself. Fees should be agreed upon before work commences, and a client’s inability to pay an invoice does not warrant a reduction in charges. Moreover, if you negotiate a fee down, there is high likelihood that the reduced fee becomes the new baseline for future work. Better to insist on a partial payment now, with precise terms agreed upon for subsequent payments.
• Document your efforts. Follow-up phone calls with e-mail or certified snail-mail documenting the relevant points of the discussion and reiterating the negotiated arrangements for payment.
If payment problems persist, be prepared to transition the client to a pay-in-advance basis. In extreme cases, consider terminating the business relationship to minimize future indebtedness. However, recognize that the odds of eventually obtaining payment are diminished if the business relationship ends. Consider also a client’s business development value. I have, at times, carried a delinquent client because of his or her visibility or networking value. However, every 30 days I unambiguously remind the client that he or she needs to write me a check.
About the author: Jim Carman is a graduate of the MIT Sloan School of Management and a retired Navy captain. He writes, lectures, and coaches job candidates on interview skills and career building topics.
