Due to precautions related to COVID-19, we have expanded our options for remote consultations. Please contact our office to discuss whether a full phone consultation or video conference is appropriate for your situation.

Should you negotiate overdue payments with customers?

On Behalf of | Feb 5, 2023 | collections

Customers who don’t pay their bills in full or who pay late or not at all are the bane of every small business’s existence. So how do you decide when to try to negotiate with a customer and when to start the collection process?

First, it’s important to determine whether this is a one-time issue or an ongoing problem. Maybe the customer is having a cash flow problem themselves. Perhaps your invoices somehow got overlooked. Talk to them about what the problem is and when they can commit to paying what they owe. Also be sure that they understand how this affects your business – for example, your ability to pay your bills and keep things running.

What payment alternatives are realistic for both of you?

If the customer is able to pay what they owe in installments, determine whether you can make that work. If they can get up-to-date on their payments, but it will just take a little extra time, it’s likely better than nothing. However, you may not want to provide any further products or services to them until they’re caught up. If you do, you may want to ask for full payment – or a least a larger deposit – upfront. 

It doesn’t hurt to look at your payment terms. Are other customers having issues with them? It may be worth considering if you can extend your payment period without jeopardizing your relationships with your own suppliers or the health of your business in general. Extending your payment period can give you an advantage over your competitors if it’s feasible. However, it’s not going to help with customers who are simply chronically late because of their own disorganization or poor business practices.

Make sure you’re prepared to draw a line

Whatever you decide to do based on your conversation(s) with the customer, be clear about what you’re requiring – whether it’s already in your contract or not. Are you charging interest for late payments? At what point will you take collection action

Then you need to stand by your word. The more you keep giving in, the longer this will drag on. If you make the decision to cease doing business with the customer and/or pursue collection of the debt, it’s wise to have legal guidance.