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096 - What to do when someone doesn't pay
How to make sure you get paid and what to do if you don’t. Usually the customer/supplier relationship goes pretty smoothly. You do the work or deliver your product and the customer pays you for your hard work. But sometimes, you send off your invoice and then… nothing!
In this episode, David looks at what to do if someone doesn’t pay your invoice, and how to make sure you have the business basics in place to avoid getting into that situation in the first place.
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Hello and welcome to episode 96 of The Vegan Business Tribe Podcast with myself David Pannell, co-founder of Vegan Business Tribe. And if you have a vegan business, or are thinking of starting one, then Vegan Business Tribe is here to support and inspire you not just to build a vegan business, but to build a SUCCESSFUL vegan business.
And today we’re going to talk about one of my favourite topics which is getting paid. Now, don’t come at me when I say that – everyone likes getting paid, but because we’re vegan, sometimes we struggle talking about the money side of business. We might see it as unethical or feel bad about making money out of something we really care about – but as a business and as a person, you need more money coming in than going out to keep doing what you’re doing. Usually, it all goes to plan: you do some work or you deliver a product and you get paid for your efforts in return. But sometimes it’s not that simple and you can be sat with an unpaid invoice wondering what to do next. So that’s what we’re going to be covering today.
Before we get into that though, what’s been going on at Vegan Business Tribe recently? Well, it’s our first week back after the Christmas break and we started the year with a big announcement that the cost of Vegan Business Tribe membership is going up! And you might think that is bad news, but it’s actually amazing good news for YOU – because from the 1st of February 2023, membership of Vegan Business Tribe is going from the £12.99 a month that it has been for the last three years to £18.99 a month for new members. And the reason that is good news, is because if you are already a member then the price isn’t going up for you, you will stay on the same £12.99 a month price that you joined on for as long as you are a member. But that also means that if you sign up BEFORE the price goes up on the 1st of February, then your membership will be locked in at the old £12.99 a month price too, saving you a whopping six pounds a month on your membership every month – or more than £70 a year.
And we know a price rise is long overdue. We’ve not increased the membership in the three years since we launched Vegan Business Tribe, even though we have 100 times the content, community and benefits than when we first launched. Lisa and I wanted to hold down the price for as long as possible to make Vegan Business Tribe as accessible to as many vegan businesses as possible, but we’ve got to the point that even our members are telling us we need a price rise, so from the 1st February 2023 the price for new sign-ups will be going up to £18.99 a month. However, if you sign-up now, so before the price goes up, then you can still lock-in at the old price and beat the price rise. So if you are one of those people who listen to every episode of the podcast, who are on our mailing list and keep saying that you are going to get around to joining but haven’t yet – then now is the time to get yourself into gear, because you’ve only got a week or so to do it before the price goes up!
So don’t say I didn’t give you plenty of notice if you go to sign-up on the 1st of February and realise you missed it by a day! And if you are one of those people who have been meaning to join us but haven’t got around to it yet, then January is really a great time to do it. We always get a new influx of members in January because that’s when everyone decides they are going to get serious about building their vegan business, and right now our Community Hub is packed with conversations, our business clinics are full of people looking for help and advice and we also recently launched our new 1-2-1 coaching with myself and Lisa and we’re opening up three more places on that in January too. So just head over to the website, click the join button on the homepage and then you can sign-up to be part of the Tribe on the old price until the end of the month.
OK, so we are talking about money today, and if you’re quite new to business then sometimes finance, keeping your accounts in order, and making sure that money keeps flowing through your business can all seem a bit boring. There are always other more exciting things in your business you would rather be doing. But if you’ve run a business for a period of time, you will learn that these things are the CORE of any business. As I said in the introduction, as vegans we don’t seem to like talking about the money side of business. And I guess that’s because, for many of us, we didn’t necessarily get into business for the money. We wanted a way to align our ethics with how we make a living. We wanted to take the skills we already had and use them to move the vegan cause forwards. But you cannot do that if you run out of money. Money is like electricity; if it runs out then everything shuts down. And if that happens then you cannot realise the dreams you have of making a difference with your business.
And that means that as a business owner, you need to make sure that the money keeps coming in. And usually that will go without a hitch, you’ll do a job or you’ll provide a product and the customer will be happy to pay you for it. But every now and again it’s not quite that simple. Your invoice goes unpaid, you deliver a product and the money never turns up in your bank account for it. Sometimes the customer goes quiet and seems to disappear from the face of the earth, or sometimes they become very vocal and give you every reason under the sun why they are not happy to pay for what they have received and start asking for a discount. If you sell a product where the customer has to pay upfront, for example e-commerce where someone pays in full before you even ship the product, then you’ll avoid many of the problems of customers not paying. You will still have to deal with returns and refund requests, but you’ll already have someone’s money in the bank so at least you’re going to be more in control of that situation. But if you’ve delivered a product, or you’ve done a project for someone and sent off the invoice and then you hear nothing back – what do you do? How do you resolve that situation, knowing how much vegans hate conflict, and what do you do to avoid it happening again in the future?
The first thing I’m going to say is that this is a lot more common than you think. If so far in your business journey you’ve had no issues with your customers paying you then you have been extremely lucky or you’ve not been doing this very long. From experience, when someone doesn’t pay your bill on time it’s often because they simply can’t, they don’t have the money. Someone was late paying them, or a job didn’t come in that they were relying on or something’s gone wrong in their business. The problem though is that businesses are run by people, and people are irrational and emotional things that react in different ways when they receive a bill they can’t pay. Some people panic and use avoidance, so they do everything they can to avoid talking to the people they owe money to. Some people outright lie, they say they never received the invoice or sometimes even say they never received the product. And some people just string you along for as long as they can, saying they will chase it up with their accountant, that they will pay next month, you know the old ‘the cheque is in the post’ line.
But there are lots of things you can do to protect yourself against non-payment and retain a good relationship with your customers. Business is an ancient activity, we’ve been exchanging goods and services for thousands of years so as you would expect, there are already lots of best practices and even laws in place to ensure that you get paid for what you sell. However, the opposite of that is also true. If you are of a certain mind and run somewhat of a sharp practice, then there are also lots of ways to avoid paying for products and services. For example, in the UK where I am at least, if you cannot prove that someone actually placed a legally-binding order with you, then that person has no legal obligation to pay you. You can build a website for someone, or you can deliver a case of your finest product, and if you cannot produce a legally-recognised paper-trail showing that person legally entered into a contract with you, then there’s very little you can do to get that person to pay you if they decide not to.
And some people know this. They will take advantage of businesses that do not have all the right procedures in place. Freelancers who just start on a project without getting a contract in place or a purchase order from a client; companies that operate without terms and conditions of sale in place. Some people will order services and products from these companies without having any intention to pay. When I launched my first agency over 25 years also, I came up against a surprising number of these characters, some running very big companies, and they saw it as just giving me a lesson in business. And in many ways, that’s exactly what they did.
So, first, we need to make sure that our businesses operate in a way that protects ourselves. An unpaid invoice can be the end of your business, especially if you are a small company that relies on the revenue on each and every job. In return, it may put you in the position where you cannot pay your own staff and suppliers. So it is vital that you find out what you need to have in place in your country or region to make any order a customer places with you legally binding. Usually, this means having a contract in place that is recognised in the law of the country in which both you and your customer operate. This might be a purchase order, it might be a signed sales form from someone agreeing to abide by your terms and conditions. It should say what goods or services are being ordered, how much they are going to cost and have details on how and when they will be delivered. It should identify who in the business authorised the order and a date of when they did so.
At the centre of this agreement should be your terms and conditions, or your ‘terms of trade’, and proof that your customer has read them and agrees to them when they place their order with you. I am always amazed at how many businesses operate without having terms and conditions of sale – but I say that after running my first two businesses without having any proper T&Cs in place myself for many years. So although I’m amazed I also completely sympathise at the same time! It’s something that seems really complicated, and we always think of those pop-up boxes full of legal text that pop up and you just click ‘agree’ without reading through them. But your terms should actually be in very clear language and make perfect sense when someone reads through them. They will say on what timescale a customer agrees to pay you, they will state who owns what you have produced before payment is made and it will also set a legal framework for the order. Now, ideally you should get both the words on your order form and your terms and conditions drawn up by a business lawyer, especially if you are a larger business or your orders are of a high value. And over the years I have seen a number of lawyers offer terms and conditions packages to small businesses for just a few hundred pounds. But there are also a lot of free resources and templates online that you can use to create your T&Cs, just make sure you read through them and that they are relevant to your business. If you run a food delivery business for example then there’s no point having a line in your order terms saying that all copyright for your work remains with you until the customer has paid, no matter how much of an artwork you think your baking is!! Terms and conditions should also be written in plain, simple language. So if you read through a set of terms and they are full of legalise and you have no idea what they say, then there’s little chance your customer will understand what they are agreeing to either.
So having your terms in place and then making sure that when someone places an order with you, you can prove that they have agreed to your terms and conditions, that you’ve both agreed to what’s going to be supplied and for how much, all this will definitely close off a lot of opportunities for people to simply try and wiggle out of paying you after you have done the work or provided your product. But go read up more about this yourself. This is part of being a business owner, educating yourself on all the things you need to know to successfully run a business. Find out what should be on a sale order or a purchase order in your part of the world and make sure you get your customer to sign it (digitally or physically) before you take on a project or sell someone a product. Most countries have organisations dedicated to supporting businesses, either government-run departments or independent bodies, who will have some good online information about creating order forms and terms of trade. And if someone doesn’t want to sign your order form, then let that put you on your guard. Remember, there are a lot of people out there who know the law and will use it to their benefit and your disadvantage.
So that’s all good, having all this in place will go a long way to protecting you and avoiding conflict. After all, what we’re trying to do is to make sure both you and your customer understand what is expected, to make sure they know when they will be expected to pay and how much. So take all the emotions and guilt away from collecting your debts and make it just another regular admin task. You’ve delivered a quality service or product and that deserves to be paid for in full, so don’t be embarrassed about taking getting paid as seriously and professionally as you do the rest of your work. When you send your invoice – which will usually be electronically these days – make sure your invoice clearly states when payment is due and repeat this in the body of the email too. If the invoice goes straight to an accounts department, then also send a quick message to your contact at the company letting them know the invoice has been sent and when it’s due for payment. There is nothing to be embarrassed by in being professional and efficient with your invoicing, it’s a reflection of how professional you are in all the other parts of your business.
But sometimes, you can have all the paperwork in place, you’ve been diligent and got the signature on the order form (or the email confirmation that the customer agrees to your quote and terms and conditions), you finish the project or deliver the product, and then nothing. The weeks go by, no payment lands in your bank account, what do you do?
Well, the first thing to do is find out the facts. First, you need to find out if the invoice has actually gone through. If you are working with a larger company, a quick phone call to their accounts department with the invoice number and your company name will tell you if the invoice is on their system or not and they should also be able to tell you when it’s been scheduled to be paid too. Regardless of if you have a payment due date all over your invoices, some companies will simply pay all their suppliers on set terms and there’s not much you can do about it. This might be 30 days, it might be 60 days or it might even be 90 days after the invoice date. And to be honest, even if they agreed to your terms and conditions when they ordered, from experience, if a large company has set terms for paying all its suppliers there’s very little you can practically do about it except wait until the scheduled payment date rolls around. You can complain, you can point out that they agreed to your payment terms, but unless you can get a director to intervene and make a special exception, then you’ll need to work that delay in payment into your cashflow forecast.
You might also be surprised to call the accounts department of a company and find that they have no record of you or your invoice! It might well be that the organisation has a set procedure for setting you up as a supplier, and the person you’ve been working with didn’t know or completely neglected to tell you about it. Or it might be that the company only accepts invoices sent to a specific email address that automatically puts the invoice on their system and you instead sent the invoice to your contact who left it sitting in their inbox. It may also be that you left some crucial information off your invoice so it never got approved – such as a purchase order number or your company name on the invoice didn’t match the company name they know you as. So it’s worthwhile, especially if this is your first job with a company, that you follow up a week after sending your invoice to make sure you’re set up as a supplier and that your invoice has successfully made it into their system, it’s been approved, and then double-check when it’s due for payment. In 90% of the cases, a quick call to a company’s accounts department will give you all the answers about why your invoice has not been paid and when you can expect it. And don’t be embarrassed about doing this, because those people you speak to in the accounts department will spend most of the day doing the same chasing their own invoices!
If your customer is a smaller company that doesn’t have a separate accounts department, then don’t be afraid to ask directly for an update. Get into the habit of regularly reviewing who owes you money, which invoices are coming due and having a quick call around, or more likely email around, to get an update. Keeping on top of who owes you money is an important part of maintaining a healthy business and in fact, like most of the admin in your business, you can automate most of it. If you’re using a professional accounting package then usually it will automatically chase payments for you with reminder emails. Most people are never on top of their admin and all it takes to resolve the majority of overdue invoices are a few nudges.
However, at some point you will likely find yourself in a situation where a customer has had all the reminders, you are sure they have your invoice and this isn’t a case that your invoice has been overlooked, they are simply choosing not to pay you. And this is where you need to get involved yourself, and the sooner the better. Don’t shy away from it because the longer you leave it, the harder it will be to get a resolution. First, you need to find out why the invoice isn’t being paid. Is it because they have an issue with what you’ve supplied them, in which case be on your guard because why didn’t they raise that before and give you a chance to rectify it? Or are they simply unable to pay it, they just don’t have the money?
In the first scenario, your terms and conditions should have already outlined your returns policy, if you allow this, and state what window they have for making a return or reporting a falt, and what happens in a dispute or if an item is delivered damaged. And there’s a very simple rule of thumb to follow. If someone has a problem with what you have delivered to them, then they can return that product to you in good order and get a refund or a replacement (assuming it wasn’t a custom product). Or they can keep it and pay for it. They can’t do both, they cannot say the product wasn’t fit for purpose but keep it and use it anyway without paying for it. If it’s not fit for purpose, then they need to send it back to you or allow you the opportunity to correct it. And be aware, some people will use this as an excuse for trying not to pay, or at the very least to try and get a discount. So make sure your terms are very clear on your return and replacement policy and stand firmly by them. The customer cannot keep you in limbo, they either accept what you have provided and pay or they return it if they believe it’s not fit for purpose so you can rectify that. And don’t be afraid to enforce that. If someone doesn’t pay for a product then you still own it, you can turn up at someone’s premises to get your product back if they haven’t paid for it!
But this isn’t just for physical products, it’s the same for services too. If you have a way to remove or withhold the services you have delivered then you should do if someone is refusing to pay up. As with a physical product, the copyright for what you produce isn’t transferred to a customer until it has been paid for and your terms should state this. So don’t leave someone’s website online if the customer is flat refusing to pay you for building it. Use what leverage you have, if you’re due to deliver a training session to a company and they haven’t paid the overdue invoice for the last one, then let them know that they need to bring their account up to date before the programme can continue. Be fair, but be firm. Don’t be embarrassed, you are not the one at fault. Remember money is like electricity, when it stops everything stops.
Of course, you might want to be mindful of your relationship with the customer, if someone has been a great client and they just need help through a rough patch you may decide to be lenient, but only if they are being honest with you. If you have a customer that is not paying you, then they are not a customer. There has to be that fair exchange for their to be a relationship. If they are avoiding your calls and still expect you to go on delivering your service then just bring everything to a halt, in fact that might be the only way you can get them to talk to you. If they are honest with you and explain they simply can’t pay, but believe they will be able to shortly, then you might want to consider offering a payment plan instead. Suggest they pay off 20% of the invoice every week until it’s clear instead of having to wait until they have the full amount before you see any money. Or ask if they can pay half now and half in a couple of months when they have been able to collect their own debts. But then closely monitor the payments to make sure they are keeping to the deal. Getting half of your invoice paid before a company eventually goes bust is better than trying to then fight all the other creditors after they go under!
The better situation however, is to make sure you never have this much exposure as a business in the first place. If you can take full payment upfront, then do so. Because we’re now all so used to buying online, we’re also used to paying in full when ordering too. When I used to buy print 20 years ago, I’d get thousands of pounds worth of brochures delivered and the printers would then give me 30 days to pay them for it. Now I order all my print online, and I pay on a card at the same time I upload my artwork. There’s usually no benefit to you giving credit to customers and usually all it does is leave you really exposed. If a customer can’t afford it now, then what makes you think they will be able to afford it in 60 days’ time? Asking for payment upfront also makes you a much more cash-positive business and means you don’t spend all your time chasing invoices. If you don’t think a customer will pay up front in full, then make sure that you take a deposit that will at least cover your costs, so that if someone doesn’t pay you, then even if you lose the profit you won’t be out of pocket. If you are not selling a physical product, then you’ve got nothing to reclaim if someone can’t pay, so that’s why it’s not unusual for service-based businesses to ask for 50% deposit upfront to make sure their costs are covered regardless of if they get the final invoice paid. It’s also really common to build-in staged payment plans for projects. For example, 25% deposit on order and then another 25% at a certain project milestone, with the remaining due on completion. Don’t spring this onto your client, make sure it’s there at the proposal stage and that everyone is aware and expecting it and that they understand that the project won’t continue until that mid-stage payment is received.
You can also look at something called invoice finance, and this is where the customer still gets a period of credit but someone else takes the risk. So when you raise the invoice, an invoice finance company pays you the majority of that invoice upfront, and then they invoice the end customer and take responsibility for chasing that payment. This is most common in large capital purchases, when people are buying high-ticket machinery or vehicles, but depending on what you sell it might be a solution for you too.
But it may be that even after all this, you just can’t get your money and you have to start considering what other options are open to you. I have used debt-collection agencies in the past, although they are only really of any use if the customer has money to collect and if you have all your paperwork in order proving the sale, proving that they agreed to your terms and that you delivered the end-product undisputed. Usually, your local solicitor will offer a service to send a legal letter to a debtor on their headed-paper for a small fee, and again sometimes the possible threat of legal action is enough to get someone to either pay up or at least start talking to you. It’s also worth remembering that you can start adding interest to overdue invoices. In the UK for example, you can add what is called ‘statutory interest’ after 30 days of an invoice remaining unpaid, which is 8% plus whatever the Bank of England base rate is. You can even put a higher rate in your terms and conditions. Again, most companies don’t actually follow through with collecting the interest, but the threat of adding interest to an already overdue payment can be another useful tool.
And then finally, if you have done everything we’ve already talked about and exhausted all other opportunities, then you may wish to settle the matter legally. This should only ever be the final option once you have tried everything else, because it will take a lot of your time, it will cost you money and it comes with no guarantees of success. Here in the UK we have the small claims system that was set up just for these kinds of disputes and most countries have similar systems in place. It can be for claims up to ten thousand pounds here in the UK, but you need to be sure of your case and you need to make sure you have a lot of confidence in your claim. The small claims route also has some other options before it goes to a judge, they can offer a mediation service that will avoid the case going for a hearing and instead work to help you resolve any disputes with a customer. You could also ‘win by default’. If you lodge a complaint against a company and the person or company doesn’t respond within 14 days, then they automatically rule in your favour. Winning is no guarantee that you will see any money though. The company may only be ordered to pay a percentage of what they owe, and if they don’t have any money at all then suing them will make no difference to that fact! Different countries have different legal systems, but usually these kinds of small claims systems don’t need a lawyer, they are set-up to be easy to understand and follow without needing legal representation.
Taking that legal route should only be an option you take if everything else has failed though. Instead, make sure you are protected with good terms and conditions and that you are collecting the right information and evidence of your order; make sure that both you and your customer fully understand what is expected on both sides; make sure that you are collecting payment upfront or taking deposits. And finally, make sure you keep on top of your payment collection as a business. These are the things that will make getting paid so much easier and hopefully protect your relationship with your customer too.
OK, so we’ve been over quite a lot in this session, so let’s have a bullet-point recap of everything we’ve just learned.
1. Money is like electricity; if it runs out then everything shuts down. And if that happens then you cannot realise the dreams you have of making a difference with your business. Even if you are not in this for the money, you need to make sure that the money keeps flowing through your business, and that means making sure you take debt collection and getting paid as seriously as you do the rest of your business.
2. Usually you will get paid without a hitch, but there are plenty of people out there who know how to get around paying you if you don’t have the right documentation in place to make an order legally binding. If you don’t have the right contract in place and someone simply decides not to pay you, there’s not a lot you can do about it!
3. At the centre of your contract with a customer is your terms and conditions or your ‘terms of trade’. This is a document that outlines how you are going to do business, and when you take an order from a customer you need to make sure you gather evidence that they have read and agree to these terms. Get advice, pay for some to be drawn up, or go find examples online.
4. Make sure your customer knows when they are expected to pay, and follow-up a week after submitting your invoice to make sure it’s on the company’s system and to find out when it’s scheduled to be paid. Some companies have very set procedures for submitting invoices and registering as a supplier, so make sure there have been no issues with your invoice and it’s not sat in limbo.
5. Get into the habit of regularly reviewing who owes you money and make use of your accountancy software’s automatic reminders to automate a lot of the follow-up. Usually all someone needs is a nudge to pay an overdue invoice, and keeping on top of who owes you money is an important part of maintaining a healthy business.
6. Make sure your terms clearly outline your returns policy and stand by it. Remember that a customer can keep the product and pay for it, or they can return it. They can’t do both – they can’t say something is not fit for purpose but keep it without paying, it still remains your property until they do.
7. Use whatever leverage you have to get an invoice paid. For example, the copyright for something you have created doesn’t transfer to a customer until they have paid for it. So don’t leave the website online that someone is refusing to pay for and don’t keep delivering a service if you have previous months’ bills unpaid. If they have stopped paying you, then they have broken off that customer relationship, not you.
8. If someone is struggling to pay then find out what they can afford. You might want to suggest a payment plan – for example, they pay 20% a week until the invoice is cleared. Or ask if they can pay 50% of the invoice now and 50% next month. Getting half of your invoice paid before a company goes bust is better than fighting all the other creditors after they go under!
9. The better option is not to leave yourself exposed in the first place. People are more used to paying upfront for products and services now, especially if they are placing the order online. Or you can ask for deposits and set payment milestones to make sure you’re not out of pocket if there’s a problem getting paid after you have delivered.
10. There are legal avenues you can take but you should only consider them once you have exhausted all other options. Legal mediation, pursuing a claim through the small claims system, and even using debt-collection agencies. But remember, if the customer simply has no money to pay you, then winning a court case against them won’t change that!
And that is it. This is part of you being a business owner. Learning how to make sure the money keeps flowing is an essential part of your business, because you can do far more good in the world with a profit than you will ever do with a loss.
So again – just a reminder that if you are not yet a member of Vegan Business Tribe, then now is the time to sign-up because from next month the cost for new members is going up from £12.99 to £18.99 a month so now is your last chance to beat the price-rise. And we would love to have you part of Vegan Business Tribe – you get so much value not just from all of our member only content, but also from the community of vegan business owners from around the world. And we are funded through our membership, so by signing up you are making sure that we can keep putting out this podcast to help vegan businesses and also all the other work we do to champion the vegan business scene around the world.
Just go to veganbusinesstribe.com and click on the big join button on the home page to find out more!
So thank you so much for giving up your time to listen, please do implement what you’ve learned today or forward this podcast on to someone who is struggling to get paid at the moment, and I’ll see you on the next one!