Collecting debts, like anything in business, is ten times easier if you’re well prepared in advance. And that means two things: prepared in your contract; and prepared in your debt recovery strategy.
The most important thing to do is make sure your contract states everything regarding payments and late payments with crystal clarity. That way, if it comes to chasing a debt later on, you have firm legal grounds to stand on.
This is better for recovering your money, and for your own confidence as you take action to pursue your debtor.
What to Have in Your Contract
Make it clear when payment is due, and how it is to be transferred, plus any penalties for late payments, such as interest or collection costs. Include times and days here as well if possible. The more specificity you have, the firmer you will feel later on in taking action.
Also state your rights if there is non-payment, such as suspending or cutting off the service. If you state these here, you may later be able to negotiate and come to some terms of agreement with the client.
Best of all, team up with a debt collection agency (DCA) like PJCDS who will handle your late payments. And have this nice and clear in your contract.
This way your clients know you’re serious about payments, and if it does come to the DCA knocking on their door, there is far less chance of resentment because they were warned. And a future business relationship is more likely to be possible.
Clarity Kills Disputes
In your contract don’t leave anything out, or leave anything ambiguous. You’ll regret it later on. The more precisely you define and then stick to your payment terms, the more likely you’ll be paid quickly and avoid disputes which destroy goodwill and future business with that client.
Equally important is how strictly you stick to what you both agreed to in the contract. If you begin to be too flexible or ignore anything set out in the contract, the client may see you as not taking it too seriously, and is more likely to take paying you less seriously too.
If you do give them some leeway, make it clear that you’re doing so on goodwill, and after discussing it with them, with still clear terms and deadlines for the new arrangement.
Work Together on the Contract
There’s a powerful law of consistency in business. If someone verbally agrees to something, they are far more likely to do it. As you sign the contract, even if it’s a standard one you use every time, take the effort to talk through the terms and agreements with your client.
You can be flexible at the start, and even discuss what happens with late payments. Make sure they agree to it, and then they have no grounds to be surprised or confused later on. That way they’ll have a hard time pretending either as well.
Follow all these steps and your contract will be an invaluable tool in retrieving late payments whenever you need it.
Scott Bryan is a financial blogger who enjoys explaining the arcane world of finance in everyday terms. Formerly a high street bank manager for over thirty years, he knows that everyone has unique requirements and so is dedicated to helping you find the right solution for you. He now works as an freelance financial writer when not consulting.