How to cope with non paying customers

One of the main reasons that new companies go bust, is that they get a customer and think that is it.  They do not realise the added cost and overhead of having to remind customers to pay and do debt collection work.

Many customers will actively see how long they can string out not paying and some will never pay.

The clients who do not ever pay will be quickly discovered and you can stop serving them.  If you keep your clients for a long time, the short period that had the non-paying customers were with you, will be relatively small in the scheme of things.

For example, a non-paying customer may have been with you for 2 months, but the good customers stay with you for 10 years or more.  So the non-paying customer in the long term is a relatively small issue.

The main rules for debt collection

1. Provide a great service: a sign of bad debts can be that customers do not want to pay as they are not receiving an excellent If you provide an outstanding service, the clients will not want to lose you as they will probably get a worse office cleaning service elsewhere.

However other customers may not pay, due to other issues and in those cases, direct debit or recurring credit card payments might be a better option for these clients.

The others just take advantage:

2. Regularly chase customers: These customers often only pay when they are continuously reminded and will pay the suppliers that are the most of a nuisance with their reminders. Eventually they will pay as they will get fed up receiving calls from you as you will have become such a nuisance and it is quicker and easier just to pay
3. When a customer says they will pay, ask them to give a date when they will pay. Send them an email confirming your conversation and the data they said they will pay by.   Iif this is not your usual contact then we recommend also taking their name, also send an email confirmation:  Then if they do not pay by that date, call them immediately as any waiting around shows that you are slack and some will take further
4. Never be rude: Say that you have to chase because other customers cannot subsidise their cleaning, but being rude gives them an excuse not to pay.
5. Make your invoices and letters Clearer: Customers can use this reason as a reason not to pay
6. If a customer’s seems trouble: There are about 3% of customers that are more hassle than they are worth, this is not getting a customer, it is just letting a criminal steal your stuff. We recommend doing like you would any thief. which is not give them an opportunity to steal more from you.
7. Customers must pay for the cost of debt collection: After reminder after reminder, if the customer does nothing.  Make sure in your terms customers have to pay the cost of debt collection.  Courts may not like penalties, so best to have charges for letters and calls in line with other debt collection companies plus removal of discounts for payments not being on time.   Please look at our terms and copy the wording in here

We recommend putting in your terms and conditions something like this

All payments must be paid when due, and all prices include a discount of 25% which is subject to payment being made within the due time. If such payment is not received when due, the full price becomes payable, and any expenses incurred by the Agency in recovery of the balance shall be chargeable to You.

Correspondence from the Agency to You regarding the recovery of outstanding balance will be charged in line with other professional institutions, these charges are available from the Agency on request.’

Then we recommend having a price list that can send to clients on request, or if they start to build up these costs from not paying.  The invoices you send them should also say the costs they have built up and costs they will build up if for further communication services.

Debt collection is a very hard thing to do to your office cleaning customers, however sometimes you are left with no other choice.  

Everything must be done to avoid the situation such as by listening and being very sensitive in regards to possible reason for the delay. The majority of you clients will pay within a couple of weeks the invoice has been sent.   Do be careful to first see what you can do to help such as payment terms or something.  Firmer debt collection is only needed if that first has not worked. 

Provide a good service so that customers pay

                Debt collection can sometimes be be avoided if you are nice and pleasant from the very beginning with your new office cleaning clients from the first enquiry to the time they place the order.

This is where the initial contact must be smooth, fast and very professional. So if you do call them about late invoices your customers are aware of how professional you have been from the beginning of the office cleaning contract.

The reason the office cleaning customers have to pay on time, is that the amount and effort that the Wellman office cleaning team put into getting the right suitable office cleaners for clients. The other reason is keep the cash flow running so the office cleaning team have money to purchase all the office cleaning products and equipment so the cleaner never runs out and to be able to do the best office clean every time

Justify to clients why they need to do this, so there is a reason

It’s not just the client who has not paid their office cleaning invoice for months that suffers. The whole of the office cleaning jobs for the company may suffer as the knock on effect of a few clients who do not pay on time, as the Wellman clean office cleaning team will be spending more time chasing payments rather than trying to get new office cleaning jobs or chasing for new office cleaning quotes.

Even bigger than that is that funds only come from customers, so other customers would have to subsidise the customers who do not pay.

                The initial email that you send them will state that the invoice is overdue, how much is due and they can either update their account or we can take the details over the phone. Also the email may state that we are not aware of any issues in regards to non-payment and would be grateful if it would be settled sooner rather than later. Also a text is a good idea to send after the email as another reminder for clients to send overdue payments.

The debt collection process involves a lot of telephone calls. You then need to make if formal by sending them an email stating the facts when the money was due and how many times you spoke to them about it. This is to avoid client making excuse that they did not know. The majority of clients will end up paying, however you may get some who won’t.

When the emails and voice calls fail then it is time to notify them very politely that the cleaner will be stopped as the office cleaning insurance will not be covered if the office cleaning invoice is not paid. It is always wise then to give them a deadline when it should be paid by or we stop the cleaner if the invoice is not paid by the deadline date set.

                This is when you have to start sending letters via email.

Standard email

Subject: Wellman Clean invoice

Dear (name),

We hope that you are well and are happy with the service you are receiving.

As always if there is anything you are unhappy with no matter how small, please do tell us?  We really want to know so that we can sort it out for you.  Please also find attached your invoice,

Kind Regards,

Wellman Clean

Due in 7 days

Subject: Wellman Clean invoice due in 7 days

Dear (name),

We hope that you are well and are happy with the service you are receiving.  Just a friendly reminder which we hope will be of help, that your invoice is due in 7 days.   As always if there is anything you are unhappy with no matter how small, please do tell us?  We really want to know so that we can sort it out for you.

Please also find attached your invoice,

Kind Regards,

Wellman Clean

1.5 weeks over due
Subject: Last invoice 1.5 week overdue

Dear (name),

We hope that you are well and are happy with the service you are receiving.  As always if there is anything you are unhappy with no matter how small, please do tell us?  We really want to know so that we can sort it out for you.  Please also find attached your June invoice plus please kindly note that your last is now 1.5 weeks overdue,

Kind Regards,

Wellman Clean

3 weeks overdue

Version 1
Subject: Sadly if payments are not up to date in 7 days’ time, we will have to stop cleaning

Dear (name),

We hope that you are well and are happy with the service you are receiving.  Sadly 1 of your invoices are outstanding and on the 21^st it will be 2 invoices. Please can you kindly let us know your situation so that we can understand accordingly?

Sadly if not up to date in 7 days time, without further information we will have to start the process of stopping cleaning on 21^st May 2016 until payments are up to date.

Please note that in order to keep cleaning on that date, it needs all due invoices to have been paid by then, not just some of them.

Our credit terms are 21 days, your invoices are now 21 days overdue = 42 days since due.

As always if there is anything you are unhappy with no matter how small, please do tell us?

We really want to know so that we can sort it out for you,

Kind Regards,

Wellman Clean

Version 2

Sadly if payments are not up to date by the end of the month we will have to stop cleaning

Dear (name),

We hope that you are well and are happy with the service you are receiving. Sadly 1 of your invoices are outstanding and on the 21^st it will be 2 invoices. Please can you kindly let us know your situation so that we can understand accordingly?

Sadly if not up to date by the end of the month, without further information we will have to stop cleaning your premises until payments are up to date.

Please note that in order to keep cleaning on that date, it needs all due invoices to have been paid by then, not just some of them.

Our credit terms are 21 days, your invoices are now 21 days overdue = 45 days since due.

As always if there is anything you are unhappy with no matter how small, please do tell us?

We really want to know so that we can sort it out for you,

Kind Regards,

Wellman Clean

 Will stop cleaning in 7 days

Subject: sadly will have to stop cleaning on (date) if outstanding invoices still unpaid

Hi (name),

I hope you are well.  Just to confirm that I spoke with Dana just now who confirmed that we would receive payment by Tuesday.

I am so sorry to say this, but we have requested payment a number of times and it is now 3 months of invoices.  If payment is not there by Tuesday we will have to stop the cleaner until payment is made.  We really do not want to do it, but credit cost means we have made a loss as is explained below and we cannot afford to go on further.  We of course have had to pay the cleaner and other cleaner management costs.

Normally we stop after 1.5 months but you have a good credit history with us and are a valued customer so we have of course done our best and pushed the boat out on this occasion..

Our payments terms are 21 days and it is now almost 3 months, once transaction gets to 1.5 months late we start running into a loss due to the cost of borrowing money as is explained below.

The following is standard practice in the commercial cleaning industry, basically customers want the best price possible and always compare outsourcing to having a cleaner themselves.   If a company employed the cleaner themselves then they would have to pay them at the end of each month.

So the customer pays the company when it needs to pay the cleaner, or indeed when the customer would need to pay the cleaner if they were employing the cleaner directly.  This is to get a price for having a cleaner and not also paying borrowing credit costs.

If the customer pays after when the cleaner was paid, there is then be another service which is credit, this would make the service less comparable with having a cleaner directly because there is that second layer of cost that of course has to be passed onto the customer, which is about 2% as the money needs to be borrowed so the cleaner can be paid.  The banking industry refers to this as invoice factoring.   This makes the service more expensive than if the customer employed the cleaner directly as there is more to the service.

So it is designed that the invoice goes out at the start of the month, the cleaner is paid at the end of the month and the customer pays in time for the money to be in the commercial cleaning companies bank  account when this happens.  As a result the customer is not using bank borrowing and credit. We say by the 21^st as we our side need to ensure the money is there and so on.

In practice though some customers do not pay until the end of the month or just until the start of the month after.  That is fine and we do not ex gratia remove their discount for payment on time.  However if it goes towards the 21^st of the second month, then we are having to borrow money for 2 invoices and the contract goes into a loss making position.

So if a customer takes 1 month and another three weeks to pay then, sadly we have to stop cleaning until payment is up to date.  In practice we only remove the discount for payment on time if the debt goes do a debt collection situation.

You are a special customer so we have let it go on longer, but this has been a loss making exercise, the company makes 2.5% net profit on turnover as cleaning is a high labour cost low margin business.  You are very welcome to come into our office to see our accounts.    So this credit cost pushes things into the red.

Best regards,

Wellman Clean

Day that stopping cleaning

Dear (name),

Just to confirm our conversation just now.  Sadly the funds are not in our account and it is now 3 invoices that are outstanding.   We have also sent 4 reminders requesting payment.

Sadly we cannot wait any longer, we need the funds in our account by 3pm today as the money is borrowed to pay invoices that are not paid within the due date.  I will call again in 1 hour unless you have called beforehand and to confirm that sadly we are not able to provide any more cleaning until all due invoices are paid,

Best regards,

Wellman Clean

First Letter

The first letter they receive should be another copy of the normal invoice due and friendly reminder that it is due in 7 days.  We recommend ensuring that this is sent as a service to them and not to be patronising or pushy.  The letter should be formal with the office cleaner client’s name, address and the date. It should also have a reference number so it can be logged. A nice pleasant letter just to remind them that the invoice is due and they have exceeded the trading terms for the amount due. 

Second Letter

The second letter they receive should state that their account is now overdue

Third letter

We have a statutory right under late payment of Commercial Debts Regulations 2013 to add interest and late payment compensation to the sum outstanding. On the letter should state the new amount due to the interest added on. They should also be reminded when we sent them the first letter and this is the second chasing letter.

Also state the date will have to stop cleaning until payment is made.

Normally just stating the date you will stop the cleaning until payment is made payment is enough for the payment to be made.

Forth Letter & final chasing letter

The fifth letter should remind them when the second letter was sent and their account is still overdue. It should still be respectable and still state that they have exceeded the trading terms and we would be very grateful to receive the outstanding amount before certain days. You should state how many days the money should be sent to us by. This will be the new amount with added interest.

Also say that we have a statutory right under late payment of Commercial Debts Regulations 2013 to add interest and late payment compensation to the sum outstanding. On the letter should state the new amount due to the interest added on. They should also be reminded when we sent them the first letter and this is the second chasing letter.

We recommend also saying the amounts of money that he debt collection has cost them and will cost them if they do not pay.

So it says how much will be due extra by what date if they have not paid

E.g. 2 reminder phone calls = £15

2  letter = £10

Removal of discount for payment time = £50

What the new total will be with these costs

So the person sees that the cost of not paying is theirs.

These costs must be the real cost to the company including the company costs, however the company should not make a profit on top of these.  It is just the costs so that other customers are not having to pay more to subside this customer.

Fifth Letter, legal action may be taken

The sixth letter should be a warning that it will be the last letter before legal action is taken, however only do this if you are planning to take the client to court. You can send them a letter stating that despite several  attempts  that we have tried to get the amount owing and have had no luck, it has left us with no choice but to take legal action unless the invoice is not cleared by a certain date. You should also write on there that if the payment has been made within the last 24 hours then to accept our sincere apologies.

Even more effective is to write out county court form, send it to client and tell them the date you will be sending it to court.

Client can then tell you are serious as you have put the work in, all you have to do is put it in the post.

 

Gurvinder Ranshi