Strategies for Dealing with Deadbeat Clients

By , March 17, 2012 11:20 am

There’s a basic accounting and food retailer phrase called FIFO – first in / first out. Simple enough. The point of the phrase is to move the merchandise fast so it doesn’t spoil or lose value.

So how does this apply to a client that doesn’t pay their bill?

In general, the longer you keep a client like that in play, like trying to get your payment, the slower the rest of your business goes. That’s because you’re not focused on the present and future, but on the past and trying to recoup monies, save face, vent anger, and not feel victimized – or any combination of the above.

By doing the best you can as fast as you can to collect payment, you can move on quickly.

Here’s a couple of strategies:

A client tells you you’re incompetent and that’s why they’re not paying the bill. They know full well you’re not, it’s just an excuse.

Or they pay only part of a long overdue retainer and not the rest, promising to pay but you know they won’t.

Strategy #1:

Tell them you can’t make them pay the bill but you can guarantee there will be consequences if they don’t. One consequence is sending a notice that you are going to sue them. Usually when they see this notice, they pay up. If they don’t, then you can actually file the notice and sue (or arbitrate – but only if it’s worth the money, time and effort to make you whole).

Strategy #2:

Tell them they have until (set a deadline) to pay or you will sue. Or not release their work. Or not complete the assignment you’re currently working on. If they don’t pay by that date, stop work, and fire them. Let them come after you to get back their art work or anything else they own.

Some preventative strategies:

• Get a purchase order (theirs not yours)
• Don’t start work until you have a written contract
• Set payment terms upfront and try to a large percentage upfront: 50%-50%, 60%-40%, etc. (sometimes clients try to skip out on the last bill altogether)

Turn and run fast in the opposite direction when you hear or see:

• “There’s a lot more work down the road if this works out” or an alternate — “give it to us for free this time and there’s more work down the road”.

• “Let’s not get the lawyers involved.”

• A big neon sign across the potential client’s forehead that reads “A**hole” – trust your gut.

 

Sandra Holtzman teaches CEO 035: Licensing.
She is the author of Lies Startups Tell Themselves to Avoid Marketing.

 

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