What to Do When Clients Won’t Pay

by WOHe

Most of us have experienced a situation where a
client, for whatever reason, doesn’t make a payment that we feel is
due us. There are probably as many reasons why we aren’t paid as
there are payments not received. This month’s column will look at
some of these reasons, as well as how to deal with collecting
payments in the face of these instances, and how to prevent such
situations from occurring in the first place.

There are several reasons clients may give us for
not paying a bill when we feel that it’s due, but they usually
break down into two categories: 1) the client does not want to make
a payment, or 2) the client is financially not able to make a
payment. Seldom will a client admit that he or she is unable to
make a payment, so this reason is usually converted into a category
one reason.

If we’ve determined that we’re not being paid
because a client doesn’t want to pay us, then it’s up to us to get
to the bottom of why they don’t want to make the payment. This most
frequently occurs when the client does not agree that the work has
progressed to the point where a contractual payment is supposed to
be made. This, in turn, can usually be traced to delays in the job
or quality of work not living up to the client’s expectations.

Payment problems
The case where a client doesn’t want to make a payment rarely will
come as a surprise if you’re paying attention to the relationship
you have with a client. In fact, not paying enough attention to a
client is often the root cause of the collection problem in the
first place. Collection problems are usually preceded by a
deterioration in the relationship you and/or your staff have with a
client.

The typical scenario usually involves material or
labor shortages resulting in several days (or even weeks) passing
without any discernable progress on the client’s project. Next will
come calls from the clients complaining that they haven’t seen any
progress, and that they want to know what the problem is. Because
work on the project is progressing slowly, the clients now have
time to scrutinize things, and because they’re unhappy with the
pace of work, they become more and more critical of the quality of
the work that is being done.

The next step in this progression usually involves
you and/or your staff blaming the clients for being unreasonable in
their expectations and not understanding the challenges that
managing remodeling projects involve. Under the worst of
circumstances, the situation may even progress to you and your
clients exchanging threats of firings and lawsuits.’

If you’ve been down this road, you certainly
realize that finding an alternative is well worth the effort. The
first step in dealing with a deteriorating client relationship is
to recognize the signs of it as early as possible. If you’re the
one in your business who has day-to-day responsibility for the
field work on your projects, you’ll be in a position to receive
immediate feedback from your clients, and will know quickly if they
become unhappy with how things are going with their project.

If you have a larger organization and do not have
daily contact with your clients and their projects, you’ll need to
develop other systems to keep a pulse on your clients and their
projects.’

Let’s assume that you’ve identified a problem with
a client. No matter where you are in the progression described
above, you need to call the client and arrange to meet him or her
to openly discuss the client’s concerns and what can be done to get
the project back on track.

If your staff has fallen into blaming the client
for the problems with the project, sit them down and explain that
“the client is always right,” even if that client seems to be
overly picky at times.

Reopen communications with your client and keep
yourself personally involved from that point on, until the project
is complete. Monitor progress on the project and be on the lookout
for further problems with your company’s relationship with this
client.

Pre-screening pros
As mentioned previously, there are basically two reasons why
clients refuse to pay: Either they don’t want to or they’re
financially unable to.

Careful pre-screening can help avoid the latter.
Depending on the payment schedule and procedure you’ve arranged
with your clients, you should be able to ascertain whether they
have the funds available to complete the project before it’s
started. Large projects are often financed by lending institutions
that will disburse funds as the job progresses against an overall
loan commitment. In other cases, you may find it prudent to do some
credit investigation if the client is doing the project “out of
pocket.”

Another danger, whether the project is financed or
out of pocket, is the client paying for substantial changes to the
project. Your best protection against problems in this area is to
make sure that payments from your client closely match your own
expenditures. You should be very cautious of continuing work if a
client fails to make a scheduled payment and you suspect that
funding may be the problem.

In cases where clients don’t want to pay due to
dissatisfaction with how the job is progressing, good communication
can be the best type of preventive medicine. It’s not likely that
your projects will always run flawlessly and exactly on time, so
it’s inevitable that you’ll have client questions and concerns
about what’s happening with their kitchen or bath. Most clients are
pretty understanding if you adopt the strategy of including them in
the process.

A weekly call to inform clients as to what to
expect during the upcoming week, as well as timely calls when
schedules change or problems arise, will give them the confidence
that you and your staff are on top of the situation and in control
of it. You should also make it a company policy to return all
client calls on the day they’re received.

Stay in touch with your operations and your
clients, and develop a means of being alerted to any problems which
arise. If a collection problem does come up, get involved
immediately.’

Next Column: Downsizing in a Small Business

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