Firing a Client for Non-Payment & Red Flags to Prevent It

Posted by Ryan Howard on Feb 16, 2017 4:15:07 PM

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A business relationship can be just like any relationship. There's courtship, similar interests, a proposal, and the big day. On the day two businesses sign an agreement, excitement abounds at the potential of the relationship to add value.  Unmet expectations and unresolved differences can quickly sour this relationship potential, leaving one or both parties unwilling to uphold their end of the deal. An unpaid invoice breaks down the relationship even further, leading you to question: Is it time to fire this client? Could you have predicted the end?

What are the red flags that signal payment challenges and how do you get paid after
firing a client?

Warning Signs

Not all relationships are doomed to fail. Situations and people change. Let's be honest - a business relationship isn't only between two large entities but also between the people and decision makers in the organization. There could be a whole number of reasons that put the relationship, and the ability to pay invoices, at risk:

  • Downsizing - Changes within the company, including layoffs, a merger or being acquired by another company, or moving to a smaller location, can be a clue that there may be financial challenges. 
  • Personal problems - When negotiating the contract, your sales team may work directly with someone who champions your company as a partner. If something changes with that person, illness or family issues, it could signal significant changes within your business relationship.
  • Inconsistent orders - Your client may have been with you for years, placing the same orders month after month, and then there's a sudden change. Maybe the orders become less often or maybe they're for considerably less. Maybe there's something going on that could be bad news.
  • Inconsistent payments - Any inconsistency, especially with a longstanding client, could signal potential payment problems. Glaringly obvious payment problems are when the client is no longer paying on time nor paying in full.
  • Excuses and disputes - If it appears that your client is suddenly disputing your contract or agreement, or makes excuses as to why they are unable to pay or uphold their end of the agreement, it may be time to examine the relationship altogether.
  • Non-responsive and avoidant - When the client becomes altogether non-responsive and avoidant, to emails, phone calls, meetings, and when they seem to regularly misplace or miss your invoice or are unable to approve payment, this behavior could signal the potential end of your partnership. 

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Firing a Client 

The above warning signs should definitely signal that your client needs extra attention. It may be that you need to make more phone calls to attempt to draw out the whole story. You might need your sales team to get involved to re-establish contact. An in-person meeting, if possible, can also help to get answers. As one last step, you could opt to outsource an accounts receivable cleanup to an agency that can use firm but gentle means to collect before sending the account to collections. If it appears that your client refuses to pay and refuses to re-engage in any way, the next step is terminating the relationship. 

How to Get Paid after Firing a Client for Non-Payment

If the work has been done, the product has been shipped or your company has completed their part of the contracted agreement, you still deserve to get paid. Once the decision has been made to fire your client, collections actions need to be taken immediately.

The longer the invoice is outstanding, the less likely you will get paid in full.

A reputable commercial collections agency will need certain paperwork or forms in order to move forward. For example, when placing a client in collections you'll want to have copies of the following:

  • Purchase Order(s) OR Service Contract(s)
  • Outstanding Customer Invoice(s)
  • Customer Aging Report
  • Any relevant notes or correspondence with your Customer

To help the collection agency get started, your customer's contact information should also be shared with the placement. If the contact information is stale, don't worry. Your collection's partner should be able to reasearch the business for updated contact data.

Lastly, the agency should have a clear collections process and be transparent about payment outcomes and fees. B2B collection agencies charge different fees so make sure to hire a corporate collections agency that meets your requirements. If you have any questions about your collection options, feel free to contact us. We'll be happy to help!

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Topics: Best Practices, Business relationships