Banking

Strategies for dealing with clients who don't pay

Non-paying clients can put your IT consultancy in jeopardy. Erik Eckel offers tips on what to do when a client with an overdue balance calls your firm requesting help.

Clients who demand service (usually same-day service) yet drag their feet paying your invoices is a perplexing though common problem for many IT consultancies. It should be easy for IT consultancies to protect profitability by ensuring they only service paying clients, right? Unfortunately, it's easy to get caught up in the chaos and stress of a typical day, and then find out that you just ran up $249 in service fees deploying a $1,200 system for a client who is 90 days past due on their $5,200 invoice.

Slow-paying customers are to be expected in IT consulting, but non-paying customers must be eliminated from your client list. Here are three suggestions on what to do the next time a client with an overdue balance calls your firm asking for assistance.

1: Insist clients pay outstanding invoices before responding to new service calls. When a client with an overdue balance calls with a fire drill, you should refuse service until your office receives payment in full. It may feel opportunistic and callous to remind the client you need to be paid before addressing or solving their issue, but your office won't be around to service any clients if you can't keep the lights on.

Remind the client they have bills outstanding, and then discuss what can be done to address their problem. Maybe they can agree to have the payment when you go onsite to fix the latest problem. If the client says you can charge their bill to their credit card, you should get their approval in writing before dispatching an engineer or providing remote support.

2: Refuse to order equipment until a payment is received.

A client who owes your business money calls promising to enrich your office with a new project that requires the purchase of new servers, workstations, or equipment. You should not order the equipment until you receive a full payment or at least a deposit on the equipment.

3: Reserve the right to disable systems and recover equipment in the event of nonpayment.

Some IT consultancies are building even more aggressive protections into their terms of sale and service. For instance, it may prove appropriate on occasion to reserve the right to remotely disable systems, servers, and routers, and even physically repossess equipment if full payment isn't made within a specific period of time.

The catch is you must get the client to sign an agreement providing your consultancy such rights before the equipment or services are provided. Also, before taking this approach, you should check laws and regulations in your locale.

Other options

If you have found other methods that work well, please share them in the discussion.

About

Erik Eckel owns and operates two technology companies. As a managing partner with Louisville Geek, he works daily as an IT consultant to assist small businesses in overcoming technology challenges and maximizing IT investments. He is also president o...

5 comments
LewSauder
LewSauder

Prepayment doesn't always work. Clients often can't make capital payments out until there is tangible product delivered. A way around this is defining deliverable milestones such as a project plan, design document or small phase of work to be payable upon completion. If payment is not received, future deliverables can be witheld. This does not eliminate past-due accounts, but can limit it significantly. Lew Sauder, Author, Consulting 101: 101 Tips For Success in Consulting.

kwickset
kwickset

I have evolved some simple procedures to ensure payment: 1.) For design work 20% or $600.- advance payment and the reminder before delivery. This avoids tyre kickers and not so serious clients. If the client declines the loss is less if he/she does not pay at all. 2.) For manufacturing it is 50% deposit and the reminder 7 days prior to delivery. Since implementing this procedure I have had no more outstandings. Any potential client not agreeing to these terms does not understand that I am not a bank financing his project. I do the same to my suppliers; 50% deposit and the reminder before delivery. The only unhappy people are the non paying ones whom I can do without.

JohnMcGrew
JohnMcGrew

Most of my clients are by referral. It can be quite embarrassing when word gets around that someone isn't paying their bills.

Sterling chip Camden
Sterling chip Camden

Put them on a pre-payment plan. No services rendered until paid for in advance.

mjcampese
mjcampese

In our present economy I don't start any large projects without getting a down payment of some sort up front. If a client were to tell me they can't make any capital payments (for whatever reason) they're telling me they have a cash flow problem they'd like me to help them with. Since I'm a consultant, not a bank, I have to walk away at that point. I've walked away and heard later that some other poor fellow got stuck for a lot of work, but not me. Time is my most precious resource these days. What other business gives away their most precious resource as much as we consultants often do?