Have a customer that will not pay your invoices?

Our guide to how to deal with non paying customers

So, your customer won't pay your invoice?

The press is often full of horror stories about rogue traders and cowboy builders. But there is much less about cowboy customers who don’t want to pay for a job well done. This article looks at the issue from a number of practical angles.

Some war stories

waiting to get paidBack in 2011 it was reported that one tradesman lost almost £50k to a famous Chelsea footballer. They couldn’t afford to take it further and retrieve the debt, partly because the paperwork wasn’t watertight.

One plumber that I knew told me how he visited the home of a delinquent payer one evening. The house was in darkness and he noticed an open window. He climbed in and sat in the lounge, still in the darkness.

After the owner arrived home, he welcomed him before the lights came on, saying he had visited to discuss the outstanding money that he owed.

He got paid very soon afterwards.

Of course, I wouldn’t advocate this approach. It might have worked on that occasion, but there was undoubtedly a lot of legal and physical risk to him from this way of doing things.

However, it is true that fewer trade businesses have payment problems with their residential customers than the average business. After all, as they say, you know where they live!

But that doesn’t mean there’s never a problem. It’s important to understand the issue, how to avoid it and whether you can you sue someone that owes you money.

Avoid the problem in the first place

I have discovered from many years in business life that if people know that they are ultimately going to lose a dispute with you, they are much less likely to start it in the first place. That’s why having formal terms and conditions with a written contract signed by the customer or confirmed by text is so helpful. This should also include something like “If problems arise that could not have reasonably been foreseen, there will be an additional charge”. Also, if unforeseen issues arise or the customer changes the specification, make sure that these are noted and agreed with the customer at the time.

I understand that paperwork is the bane of all trade people’s lives, but proper paperwork covers you if there is a legal dispute and also reduces the risk of a dispute even happening.

Setting expectations correctly so that you both expect the same actual work, timescale and price is also very important. It helps the customer to avoid shocks. The work to be done should be discussed in detail and ideally, you should get the work signed off by the customer each week.

Try to avoid customers who give off warning signs, which may include ones that are over-demanding, unreasonable and ridiculously picky. And get at least some money up front. It reduces your risk by both ensuring that some of the costs are covered and gives you the first inkling of how likely they are to become a problem customer.

If there’s a problem, let someone know immediately and write it up, at a minimum as notes in your diary. If it ever comes to legal action, the person with the best records will often win.

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Can’t pay or won’t pay?

customer has no moneyI have a friend that ran a golf equipment company that got into trouble. When he started realising that he was going down, he became a chronic late payer. As he reached the point of no return, he told me that he paid people that were being nice to him but ignored the ones that were nasty.

In contrast, I had a customer that also went down. We had been very patient with them. But after they went into liquidation the former managing director told me that we would have got more payment if we had been stronger with them at an earlier stage.

In both cases, they actually couldn’t pay everyone.

Of course, a lot of late payers aren’t going bust, which presents a different but more common problem: they simply won’t pay. If they are a really large customer, do you want to upset them by pushing too hard? If you don’t push a dishonest customer, will they be less likely to pay the more time goes by? And will you be less likely to pursue them after you have mentally written off the money? These are all hard questions for a small business to think about.

All in all, it’s not easy and this illustrates the point that there are differing reasons why people don’t pay. Knowing the reason why can be the difference between getting paid and not getting paid.

Avoiding late payers

So here are some practical tips for how to head off payment problems before you even take on the work:

  • Set your customer’s expectations by keeping lines of communication open. Advise your customer immediately of any problems with suppliers or delays due to the weather

  • Make sure that you have a paper and photographic trail. Terms and conditions, an accepted quote and before and after pictures will provide for a cast-iron case if there are any disputes

  • Make sure that your customer understood the payment terms before you started the job. Consider including a charge for late payment in your terms and conditions. This can provide a big incentive for the customer to pay on time

  • Try to sniff out and reject difficult customers. Some will give you tales of woe of dealings with previous trade businesses. Sometimes, of course, the previous tradesperson was useless. We all like to think that we are much better than the previous guy. However, when they have a ridiculously long list of woes, it is more than likely that the problem lies with them. Maybe they are over-the-top perfectionists. Some people find it impossible to make up their mind about the job. Maybe they keep changing their mind even after they’ve given their “final answer”. It probably means they will be real trouble once the job has started. In any of these cases it may be better to walk away

  • Are they penny pinchers? In our experience, the customers that are penny pinching before the job starts will have the highest expectations and will be most likely to object to paying later. Again, it may be better to move on to the next opportunity

  • Do they want to use cheap materials? You have to ask yourself who will get the blame if the result doesn’t look nice, doesn’t fit properly or quickly fails. Here's a clue: it won't be them!

Doing the job and invoicing it

As the job progresses issues can develop that might lead to payment problems. Some actions to prevent this are:

  • Invoice up front for materials and don’t order them or start the job until you have been paid

  • Be crystal clear and discuss with the customer if you hit issues that will mean that you need to charge more or the customer requests changes that will necessitate a further charge. Make sure that this is agreed

  • Always get your invoices out quickly after you have finished the job. It helps you to get paid faster and communicates efficiency and dedication to getting paid. Plus, you will find it easier to remember to charge for any little extras agreed with the customer. People are more in the mood to pay after good work has just been completed

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After they have failed to pay on time

Some useful principles to follow to help to get payment when it is overdue are as follows:

  • If the customer says they haven’t got the money to pay and you believe them or they are a large company, see the sections below

  • Don’t chase them if there is a dispute. Resolve the dispute first unless they are being completely unreasonable

  • If the dispute is minor, try to give way even if you are in the right. Just the time saved, let alone the hassle, usually makes this the best business decision

  • Be quick off the mark if payment is late. Never let it fester. If payment is a week later than your terms, you should have already issued a gentle reminder

  • Just as you are quick off the mark, be unfailingly polite in your contact. You don’t want to push people into becoming unreasonable. Explain that you are a small business, you have overheads etc.

  • Remember that anything you say in public about your customer, or on social media, could expose you to being sued and this does occasionally happen. So, if you must share a tale of woe, make sure it is totally accurate and can be fully backed up. Also remind your customer of this if they threaten to defame you on social media. One person unfairly criticised a law firm (of all people) and suffered a big award against them! Search Google for “customer defamed law company on social media awarded £25,000 Law Gazette, January 2021”

  • The first time you chase a debt might be best done with a friendly phone call. After that, keep on chasing as necessary. If your first chasing is by email, sending a letter or text, make sure they are eventually called on the phone. Some people only respond to personal contact

  • Whenever you chase, always acknowledge that the payment might cross over with your communication. Do this by saying something like “If you have already settled this invoice, please ignore this communication”

  • Keep your chasing in line with the speed you issued the invoice. If you took a month to send it, don’t chase it three days later. It will cause intense irritation. You have already communicated that you aren’t in a rush for the money

  • Your tone should start very friendly and then gradually become more factual, but never insulting. Remember that most people will pay in the end

  • If after several chases and broken promises you haven’t been paid, use the small claims court. It’s remarkably easy and if the target doesn’t respond you will win the case. But you must have some confirmation that your customer agreed to the job and hopefully some proof of work done. After you have won if they still don’t pay you can appoint a bailiff to go around to their premises. They have the legal authority to seize goods to cover your bill, the court costs and their own costs. It will almost always result in you getting paid. We fully cover this in a separate article

Larger businesses

If you are dealing with a larger business, there are a few additional things to consider:

  • You MUST charge them more in the first place. They will make you jump through hoops on insurance, health and safety and probably pay you late too. So, you need compensation for all of that. In fact, being much cheaper than the competition will undermine your credibility

  • In return there is less competition as many businesses can’t be bothered with the hassle and aren’t good at jumping through the hoops. As a result, most of the competition will be much higher priced

  • Perform credit checking on new customers. You can do this through various online services. You need to only deal with ones that can definitely meet their bills, that way you will eventually be paid. You really can’t afford any debts going bad on larger contracts

When the customer hasn’t got the money

If the customer genuinely doesn’t have the money, they won’t immediately pay you whatever you do, because they can’t. So, if they reach out to you to explain that money is tight and they need more time, be receptive. Getting angry risks the customer switching off and changing from thinking that they will pay you to a possible “screw you.” Instead, kill them with kindness. Then agree a payment plan for debt collection.

The reason to adopt this approach is if you took them to court and they offer a reasonable payment plan, it is very likely the court will accept it anyway.

If they are a business that is still trading but struggling, it’s different. They have some money, it’s just a question of who gets paid. So be insistent while being unfailingly polite and nice. Go to legal action moderately swiftly so that you get paid ahead of the rest. After all, as illustrated by the earlier story, only some creditors will get paid, and you want one to be you.

When all is said and done

At the end of the day, we do jobs for customers in order to get paid. And not getting paid really doesn’t work.

My hope is that some of the advice here can help. All of the best and here’s to happy collecting!