Clients will generally not pay an invoice for three main reasons:
- The time effect.
- The cash impact.
- Conscious or subconcious avoidance.
The time effect:
The Time Effect refers to a delay between the job and your invoice. You can deal with the Time Effect by ensuring invoices are sent out promptly when a job is completed, at appropriate pre agreed milestones in a job or at the end of each month. Avoid sending out annual invoices because the lapse of time between the job being finished and the invoice arising diminishes the value of the job to the client.
The cash impact:
The Cash Impact refers to how the invoice affects the client’s pocket. The Cash Impact is felt when the invoice is much higher than the client expected. The Cash Impact can be minimised by ensuring their expectations are clear at the beginning of the job. On occasion, the client may simply be experiencing a cash squeeze. A formally documented payment plan may be appropriate but will depend on your collection policy.
Conscious or subconscious avoidance:
Unfortunately, we can sometimes get clients who have no intention of paying. Usually these clients can be identified and rejected at the first meeting. Having a good engagement letter setting out your payment terms will help minimise bad debts but it will only be effective if you remain firm and follow your procedure. That means handing delinquent accounts to a debt collector for further action, including court orders for payment. Occasionally a client will just be forgetful and not remember to pay your invoice. Have a simple debtor management procedure, and regularly remind clients of overdue invoices. If you follow up outstanding invoices regularly, you will avoid the Time Effect and reduce the risk of bad and doubtful debts. It is important to remember that the job isn’t finished when you get the job lodged or back to the client – the job really only finishes when the invoice is paid! Ensure all your team is aware of the importance of following up outstanding invoices promptly.