LEGAL GUIDE
Written by attorney Daniel Earle Skinner | Mar 31, 2011

How to Get Your Overdue Invoices Paid By Lighting a Fire Under The Customer

This article outlines several steps that should be taken to get your clients to pay any and all overdue invoices. In this economy, it’s not enough to get the clients, provide a product or service and wait for payment. Your company has done the work and the customer has obtained a benefit. The account should be paid for promptly. The problem is that customers often have other more pressing obligations. If other creditors are pressing for payment, they will get paid first and your company will often have to wait for that customer to get around to your unpaid invoice if there is any money left at the end of the payment period. Financially stressed companies often pay bills in the order of which fire is growing faster. This article will explain how you can light a fire under your un-paying customer and still protect that on-going business relationship.

  1. Prepare the Kindling

The first step in recovering on the unpaid invoices is actually started long before the debt is even incurred. When you get a new customer, get as much information about the business as you can before you sell them a product or service. A credit application is the best tool for this. Getting banking information or credit references will save you the time of having to pay an investigator to do this later.

Keep this information current is also a good idea. Over the years, the good customer can often change banking institution or accounts. Getting personal guaranties are also a good idea at this stage if there is any doubt as to the company’s on-going solvency.

It is also a good idea to set up the terms of any credit at the onset. Charging interest and imposing liability for attorney fees in the event of legal action is always a good idea.

  1. Keep Extra Firewood Around

Once you’ve started doing business with a customer it is important to keep clear and accurate business records. Never have a doubt how much a customer owes you or is behind on their accounts. If it is necessary to take your case to a court, clear records, invoices and payment ledgers can save a lot of time and legal fees in getting a recovery. You are likely to need this information not only to inform the customer of the basis for overdue accounts, but to prove to the court in some summary proceedings to show the validity of the debt.

  1. When You Strike a Match, Do it Quickly

When you are lighting a fire, it doesn’t help to slowly strike a match or rub two sticks together without building up some friction. Any demand to a customer to pay an overdue bill similarly will have to cause a little friction. The goal is to get them to pay your company first before any other bills that are due. A strongly worded letter imposing strict timelines or legal action will often suffice.

It is a well known principle in the collection industry that the more dust that collects on an overdue account, the less likely the account is collectable. Companies in distress will often pay the smaller bills first and ignore the insurmountable account. The goal here is to keep the customer worried about your bill and make sure they aren’t putting it at the bottom of all the other liabilities.

While collection agencies claim to be able to put pressure on a customer, they have no real force and often do more damage to your business relationship. Collection agencies often charge much more on the collection of a claim than would a law firm that does the direct collection for you. Since collection agencies have to hire lawyers of their own, their charges and the attorney’s collectively are often much higher than they need to be.

  1. If the Fire Doesn’t Burn Fast Enough, Put More Fuel in the Furnace

Once you’ve taken all reasonable efforts to get an overdue invoice paid, it may be necessary to refer the claim to a business attorney. Our legal system treats unpaid invoices as special types of cases and they can often be treated in a summary procedure. Assuming there is no real dispute about the quality of services or product and the only issue is payment of the charges, there is no real dispute involved. A diligent law firm can get the claim to judgment in a relatively short period of time compared to other litigation claims.

Assuming your company has taken all steps to get a voluntary payment, a law firm can turn up the heat without necessarily pouring gasoline on the fire. A law firm should be aware of the possibility of getting that delinquent client to return to your good graces of being current on their liabilities.

  1. Once You Have a Fire Burning, Don’t Let It Go Out

Never give a customer the idea that you are not serious about collecting an overdue invoice. Timelines should be strictly enforced. If you threaten legal action within a certain period and you let that period lapse by a significant period, the customer may become complacent about paying your invoices. A prompt legal filing and delivery to the customer often causes immediate payment. A timely letter from you to the customer at the time of filing the lawsuit, can assure that client that this is only business and that payment of the invoices will repair the relationship.

Most legal actions result in at least some partial payment from the customer to resolve the matter. If a case must go to judgment, the more aggressive steps can be taken to collect. This is where the financial information about the customer is most valuable. It pays to keep this information current and as mentioned can eliminate the need for additional investigation and court proceedings.

  1. Conclusion

Collecting your unpaid invoices is crucial to staying in business. Preparing the kindling and keeping the flame going can be the difference between a burning furnace and smoldering ashes. Being organized and straightforward with your customers will show them that you mean business and get results for you, even if it means turning up the heat.

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