Top 10 Wrong Ways to Collect Delinquent Payments

Collect Delinquent Payments

Whether your business is providing construction services or renting construction equipment, not getting paid for your work is both frustrating and problematic for your business. Its effects range from restricting your cash flow to making it impossible for your business to function.

Having developed a customer, made a sale and performed work or provided services, you may feel that your job is done. But we all know the job is not done until you get paid. Those who have experienced it are familiar with the cast of characters. You have met the slow payers, who eventually make payment. You have encountered the hagglers, who want to build up their receivable and negotiate a lower price in exchange for prompt payment. And you have met the non-payers, who either cannot make payment or will not make payment for various reasons, which have various degrees of validity.

As with any other aspect of the business process, there are right ways and wrong ways to ask a delinquent customer to make payment. Making the right decision could very well be the difference between getting paid or not and between keeping the customer or not.  There are right ways and wrong ways to ask for payment. Ditch the behavior that compromises getting paid.

MISTAKES TO AVOID WHEN TRYING TO COLLECT PAYMENTS

MISTAKE #10 – DOING NOTHING

You’ve done everything right. You were clear with your customer about payment terms and the services to be provided. You’ve invoiced in a timely fashion with a bill on which nothing was unexpected. Payment has not been received. Everything is running smoothly until you don’t get paid in a timely fashion. Your business is successful because you treat your customers well and it can be uncomfortable to reprimand them for delinquent payments. Maybe they sent the check out and you will insult them by bringing it up? Maybe the check will arrive in a few days or a month? They placed other orders since then and you don’t want to alienate them. After all, you pride yourself on customer relations. It doesn’t matter. One of the biggest mistakes a businessperson can make regarding delinquent payments is to not ask for payment at all. The older a debt gets, the harder it is to collect in full. Don’t make the mistake of not pursuing delinquent accounts. That said, there are certain dos and don’ts to follow.

MISTAKE #9 – BEING DISRESPECTFUL

Your paying customers are your lifeblood and how you treat them is paramount. Non-payment can be due to a variety of reasons, ranging from an innocent misunderstanding to a deliberate decision not to make payment. Don’t treat a past-due customer as an enemy. Your first step is always to respectfully find out why payment is not being made. Most customers want to pay and have every intention of making payment. He may have a short-term issue or a real problem with his business. If it is a short term issue, that customer can easily become an ex-customer if told, “that’s your problem.” Business and respect go hand-in-hand. The customer may not always be right, but he certainly deserves the benefit of the doubt in the first instance.

MISTAKE #8 – STARTING WITH A FORMAL WRITTEN DEMAND

You pride yourself on personal and professional service in your business. Don’t forget to treat customers the same way when seeking collection for past due payment. You don’t want to do nothing, and you don’t want to be disrespectful. Both of those goals are better achieved with a phone call to politely remind your customer that an invoice is past due and to inquire why. In this day and age, phone calls, especially about collection, are more uncomfortable to make than texts, emails or letters. We are all trained to avoid discomfort. Despite the discomfort, there is no doubt that the easy problems will be resolved faster and with fewer issues if they can be addressed person to person. If the issue is one that can be resolved, understanding clients’ needs is important and customers will be more appreciative that you reached out to them personally.

MISTAKE #7 – STARTING BY CUTTING OFF SERVICES

In case you haven’t figured it out by now, collecting delinquent payments is a balancing act. The goal is to collect your money while keeping the account and continuing the relationship. On the one hand, continuing to provide services or equipment when money is owed to you may seem foolish. On the other hand, the services and equipment you are providing are a source of leverage. The more your customer still needs you, the more likely you are to get paid. Balance the two. You do not want the debt to continue to build and you may have to cut off services eventually, but don’t make that your first move.

MISTAKE #6 – STARTING WITH A LAWSUIT

There is no faster way to end a business relationship than to sue a customer. Whether that customer is delinquent in payment because of poor cash flow or an innocent miscommunication, the response to a lawsuit is to hire a lawyer of your own and spend money defending the case. By definition, you have made your customer defensive. A lawsuit is a sometimes a necessary evil. While it may, in some circumstances, be the only way to collect a receivable, it should be a last resort.

MISTAKE #5 – DRAWING LINES IN THE SAND YOU DON’T PLAN ON KEEPING

We all have them. Slow-paying customers who will get away with anything they can. If you are dealing with a customer who has convinced you that he is worthy of additional time to pay, it is important that you do not impose unrealistic deadlines. It simply sets your customer up for failure. However, there is nothing wrong with drawing lines in the sand, if you plan on imposing them. When a customer learns that your deadlines are not enforced, you can be sure that you will be the last vendor he pays. If he has forced you to give him a deadline for payment, try to make it reasonable, but do not extend it. You will lose credibility and remain unpaid.

MISTAKE #4 – WAIVING YOUR LIEN RIGHTS

Mechanic’s liens are inexpensive ways to formally and legally secure your right to get paid. You do not have to create an adversarial relationship with your customer. Very often your customer will tell you that he has not paid you because he has not been paid. You can bring that situation directly to the owner’s attention by filing a lien. If your customer has asked you to sign an unconditional lien waiver or a contract which denies you of your lien rights, do not sign it without legal advice. Your lien rights are given to you by statute and, if used properly, can help you get paid without alienating your customer.

MISTAKE #3 – LETTING YOUR LIEN RIGHTS LAPSE

Mechanic’s liens are the statutory creation of the legislature. They include strict time and notice requirements. These time requirements differ from State to State. Customers who owe you money are inclined to ask for more time. To preserve the business relationship, you may want to give them time. A good guideline for the limit of how much time you can give them is the time within which you must file a mechanic’s lien. It also provides you with a good reason (“It’s not me, it’s the law”) and an explanation that you are also trying to help them get paid by the owner, if that is the excuse.

MISTAKE #2 – TREATING ALL DELINQUENT ACCOUNTS THE SAME

Not all delinquent accounts are the same. Some require a poke and others require a lawsuit. Understanding the reason for non-payment is the first step in dictating your actions to collect delinquent accounts and get paid. There are as many ways to handle delinquent accounts as there are excuses that a customer has for non-payment. The customer’s payment history, his reputation, and years in business are all factors. You may also want to know if they are doing public work, which requires financial vetting by public owners. Be open to hearing a customer’s reasons for not having made payment. Once you know why they have not paid, you can work toward resolution

MISTAKE #1 – JUST GIVING UP

Anyone can work for free, but no business can prosper from it. Collecting delinquent accounts is as important as closing a sale or providing your service or equipment. Once you have avoided all the “Don’ts” of attempting collection, while trying to maintain your business relationship, you need to understand your legal rights and pursue collection. In construction, mechanic’s liens statutes are designed to protect those who add value to improvements on real estate. They provide a strong mechanism, short of litigation, to pursue delinquent accounts.

Some of the steps and terminology of the lien process to consider are:

  • Lien: If you haven’t received payment, you may file a mechanics lien to enforce payment.
  • Pre-lien notices: Many states require official notice before filing an official lien.
  • Stop notices: These tell the project owner you aren’t getting paid.
  • Amendments of liens: Sometimes you may need to update a lien’s conditions if you receive a partial payment or dates change.
  • Extending a lien: All liens include expiration dates. This process extends the lien.

Filing bond claims: These protect subcontractors, sub-subcontractors, and suppliers from performing work without getting paid.

How LienItNow Can Help

No matter which state you operate in, we can help you file a lien or other claim to receive payment.

Our streamlined lien filing form is easy to complete. If the mechanics lien claim doesn’t result in payment, LienItNow can provide you with referrals to qualified attorneys or collection agencies that specialize in lien enforcement.

You can educate yourself on how lien laws vary by state with our organized chart, learn more about our filing process, or contact us today with any questions. You can also call LienItNow at 1-888-543-6765.

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