What to do when your customers won’t pay their bills

Find yourself providing interest-free loans to customers who won’t pay their bills on time?

Business Foundations chief executive Phillip Kemp gives you the rundown on what to do when the invoices are being ignored. 

There are times when a Dilbert cartoon gets it just right – like the one in which a small businessman is explaining to a big business why it needs to pay its bills on time. After all, if it doesn’t, then the small business would go out of business, which would result in the big business not needing to pay its bill …

Many small business owners believe they face this dilemma, in particular with their most important customers — they are the ones too important to complain to about paying their bills.

The fear is that if the small business person complains too loudly, the client will take their business somewhere else and the small business will lose out.  So small business owners keep quiet and pretend all those late payments don’t keep them awake late at night worrying about cash flow.

Image: Nik Shuliahin

Image: Nik Shuliahin

The question I ask my clients when they face this situation is simple:  “Can you afford not to be paid?”

If you can, then let the customer off the hook and they can pay in their sweet time.  If you can’t afford it, then tell them.

You really have nothing to lose.  You need to run your business in a way that works for you and your cash flow.  Allowing your customers to take advantage of you by not paying is not fair, and you need to remind them of that.

Negotiate better terms and discuss the importance of respecting your cashflow and the work that you do for them.  Most reasonable people will come around and the situation will improve.

If this isn’t a customer you need to keep on side — and is one who is just refusing to pay — you can take additional steps.

Let your customer know you are serious about your payment terms, and that if you re not paid you will take the matter further. In WA, you can take your customer to the Magistrates Court for amounts less than $10,000 in what is called a minor case claim.  Neither party is entitled to be represented by lawyers in the court unless both agree — or the court decides — that you will be disadvantaged if you are not represented. All matters in WA are held in private and lodgement fees are reduced for small businesses. You can even lodge your claim online with a credit card. Find out more at the Magistrates Court website.

It’s a good reminder to pay your own bills on time as well; defendants in these matters have 14 days to respond after being served with a claim.

If none of that works, start looking for customers that will pay on time and get rid of the bad payers.  It will save you money and sleep in the long run.