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
Back 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?
I 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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