The SIX main reasons why debtors don’t pay – there are no more

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The SIX main reasons why debtors don’t pay – there are no more

the real reasons behind the excuses givenDebtors have been known to come up with all sorts of weird and wonderful excuses why they cannot, or will not, pay an overdue account.

But, behind some excuses there may be another reason. The REAL reason. Of course, sometimes the excuse IS the real reason but many times the excuse is just that … an excuse.

Your job, as a creditor, is to find out what the real reason is. Once that’s known, you can take the appropriate action.

For example, if the reason is genuine, a disputed account balance, you can help the client by proving that the balance is correct or crediting his account if you are in the wrong. If the client is suffering a genuine cash flow problem then, again, you may be able to help him by being prepared to consider a repayment proposal.

BUT, if you establish that the client is simply stalling payment so that the money (that should be sitting in your bank account) is being used for something else, then a totally different approach would be necessary. Think of any excuse that has ever been given to you by a client with an overdue account and the real reason for the late payment can usually be put into one of these categories:-

1. A Genuine Dispute – Disputed balance or unhappy with some aspect of the work performed.
2. Careless – They forgot or didn’t understand when they were supposed to pay.
3. Disorganised – Their own books are in a mess.
4. No Money – The intent is there but not the cash.
5. Unconcerned – Couldn’t be bothered and too busy to worry about the unpaid invoice.
6. Dishonest – They want to use your money for their own affairs.

The debtors may have a genuine dispute about the invoice. They may be unhappy with some aspects of the work done, the amount charged or have some other complaint. This is by far the easiest of the reasons to resolve because the intent to pay is probably there.

BUT … you have to know that there is a dispute to be able to sort it out. AND the earlier that is done, the earlier the invoice will be paid. Therefore, the earlier you start your collection process – the sooner you will find out if the invoice is disputed or not.

Answer? Start the collection process as soon as the invoice is overdue.

If the client ‘forgot’ to pay the invoice or did not understand the firm’s trading terms – then this is partly your fault for not making your trading terms clear enough. It’s very important to set your rules from the beginning. If you are not sending out reminder letters/emails or phoning for payment, some debtors will genuinely forget.

Answer? Don’t wait for the invoice to be paid, Christmas may come sooner. Phone or, preferably, write to these debtors as soon as the invoice is overdue.

This third reason could be simple inefficiency, poor personal money management or they may just pay creditors on a “pay ’em when they chase us” basis.

Answer? The creditor (you) that is going to get paid first is the creditor that asks for payment early in the piece and then keeps on asking. (Ever tried not feeding your cat when you first get home if that’s the time that the cat normally eats?)

The first three reasons are not too hard to sort out. The dispute can be resolved and both the “careless” and the “disorganised” merely need prompt and regular actioning. But now, we are looking at the first of the problem reasons.

Answer? As soon you identify that “no money” is the real reason it is absolutely vital to find out two things:

1. if the problem is short-term, or
2. if they are in serious, long-term financial trouble.

Your next course of action will depend on what reason they gave you for being short of money.

For 1, make a firm payment arrangement, put it in writing and follow it up if that arrangement is not kept.

For 2, however sympathetic you may be to their plight, try and get them to come into the business to see you (if at all practical). Talk through the situation with them face to face. You need the answers to a few questions.
1. Are they genuinely trying to resolve their problem?
2. When will they be able to pay?
3. Do they care?
4. Are they worried?
5. Can you help?
6. Are you prepared to wait for their crisis to be resolved?

If they can’t, won’t or it’s simply not practical for them to come in to see you, write to them. There are several suggestions for wording in our e-book that will help. Also many tips in other blog posts on this site to deal with this exact situation.

But be assertive. Waste no time and follow your laid down procedures.

Unconcerned? Too busy to worry about the overdue invoices? You are interrupting their work (or their favourite TV show) when you phone them about it? To use an Americanism, this client has attitude. And that attitude is not convivial to a good ongoing professional relationship. How do you deal with this one?

Answer? Extremely quickly.

Take the same course of action as you did for 2 (in ‘No Money’) above. The letter/email could be adjusted depending on the conversation to advise these debtors what steps you intend to follow. Don’t waste time. Do it now.

If this is the reason, then they are treating your business as an interest-free banking facility and abusing the system. Don’t let debtors like these get away with paying you late. You’re probably better off without them.

Answer? Same as Unconcerned.

There’s no magic to collecting money but a few moments spent planning your strategies for different events will pay dividends in terms of prompter invoice payments and less hassle once:
• you have established your own rules,
• you know what to do, and
• you know when you’re supposed to do it.

Contact us if you’d like some help with this.

By | 2020-04-16T05:39:07+00:00 March 10th, 2015|Uncategorized|0 Comments

About the Author:

Have you ever wondered why a client does business with you and then ignores your invoice like they had no intention of paying it in the first place or they treat you like their own personal line of credit, leaving YOU dangling, waiting months for their payment? Unfortunately this situation is all too common and can even be puzzling for the most experienced business owner. If you’ve ever had to handle outstanding accounts or you are just so over non-payers, then we can help. Real-world skills, solutions, tips & strategies to get more accounts paid on time, and, most importantly, how to maintain customer goodwill while keeping YOUR cash flow in the positive. You will find the blog posts helpful but to get real results, contact us by using any of the forms on this site, by email or by phone. I’ve been involved in the management of accounts for over 30 years, heard every excuse in the book, can spot a non-payer at 20 paces. Finance Companies in the 70s (systematic, tough), professional firms in the 80s (no systems, too gentle) and, since then, just about every other sort of business you can think of. I’ve written books on the topic, spoken all over the place about it and the blog in this website is my way of “giving back”. I hope you find it helpful.

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