Look at any social media platform or forum where field service business owners hang out and you’ll find many tales of woe from plumbers who were fleeced by a customer. The plumber did the work, and the customer either flat-out refused to pay, dragged out the payment process for months, or went out of business before shelling out the cash.
‘Sometimes it doesn't matter how early or prompt you are, how clean or courteous you are, or how high-quality your service and workmanship are’, says Elliott Raggio, Director of On Tap Property Services Ltd. ‘The customer always has the financial upper hand, and it’s become more common for a customer to threaten negative social media posts and openly blackmail in order to get money off or to win the dispute.'
If you’ve suffered from non-paying customers, here’s how to make sure it doesn’t happen again. If it hasn’t happened to you, here’s how to keep up that streak of good luck.
How to Avoid Late-Paying and Non-Paying CustomersHere's a quick overview of how to avoid the problem of non-paying customers before you're hit with one; then, we'll delve into the details on each point.
- Don’t push the sale.
- Watch out for penny-pinchers.
- Insist on a contract.
- Gather the evidence.
- Get paid up front.
- Don’t trust the trustworthy.
- Beware the common red flags.
- Be picky with your invoices.
- Get organised.
First, let’s talk about avoiding the whole mess in the first place.
Don’t push the sale.
If you have to push to make a sale, that’s a sign the customer just isn’t that into you, and may turn into a non-payer when the regret of their purchase sinks in.
Watch out for penny-pinchers.
If a customer seems more concerned with the price of your plumbing services than the services themselves, watch out—these types of customers have a higher rate of backing out of the deal once the work is done, according to this article on the QuickBooks site about how to know when a customer isn’t likely to pay.
Insist on a contract.
One business coach, when clients ask if they need to use a contract with customers, replies with ‘Only if you want to get paid.’ Heed her wise advice. If a customer refuses to sign a contract, send them packing.
We get that it's not worth the effort to draft up a detailed, multi-page contract for a small job. In this case, many plumbers will rely on a simple verbal agreement—but when you do this you risk the customer disputing the bill later. No paper trail = no pay.
Instead, write up a quote and get authorisation on those small part installs. This makes pricing more transparent, and means customers are less likely to dispute the bill.
‘We do all we can to avoid being put into this position [of not getting paid] by taking regular photos and getting on-site signatures in our Commusoft app stating that customers are happy with the workmanship’, says Elliott Raggio. It's so easy these days to snap photos and get digital signatures that there's really no excuse not to do it.
Get paid up front.
Make sure customers are clear on your payment terms; for example, you might ask for one-third up front, one-third at the halfway point, and one-third once the job is completed—and don’t start work until you’ve collected the first payment.
Don’t trust the trustworthy.
Ever notice how it’s always those people who say ‘You can trust me’ or ‘I’m a trustworthy person’ who end up scamming you in the end? If a customer protesteth too much, take a hard look for other signs that they may refuse to pay.
Beware the common red flags.
Got a prospect with a huge commercial plumbing job? It's worth the effort to do some research to make sure the customer will be able to pay you. After all, the higher the invoice, the more it hurts when you don't get paid.
To start gathering intel on a potential customer, check out Companies House, which lets you examine businesses' returns.
FundingGate also points out these red flags to watch for:
- The customer is getting divorced.
- The customer's order rate suddenly skyrockets—or tanks.
- The customer stops responding to your calls and emails.
- The customer is selling the company.
- The customer is laying off workers.
- One of your customer's clients has filed for insolvency. (You can search through the UK Government’s Insolvency Service to find out.)
In short, any personal, financial, or business problems on the part of a customer can result in you not getting paid—so if the job is big enough, do your due diligence before starting work. If you spot any red at all before (or whilst) working with a customer, proceed with caution.
Be picky with your invoices.
At best, incomplete or incorrect invoices can delay payments from honest customers. At worst, less-honest customers will use a typo or missing VAT number in your invoice as an excuse to stall on your payment.
Nuvem9, which offers cloud accounting services, suggests you include on all invoices:
- The correct name and address for the customer.
- A description of the work agreed to and completed.
- The purchase order number.
- VAT details like the tax date and VAT registration number (if you’re VAT registered).
- Terms and conditions.
- The due date. Figure out when you need to get paid—and reduce that number by 14 days on your invoice (and contract terms).
- Your contact information so the customer can call if they have questions.
Check out Nuvem9’s article on how to handle late-paying customers for more invoicing tips.
Of course, you can have the most organised invoicing system on the planet, but if you take a week to send out an invoice your chances of late payment increase. The more time that passes, the less and less urgent your invoice seems—so get that invoice out the day you finish the work.
Sloppy accounting practices can cause your plumbing business to lose gobs of cash. Spend some time up front creating what you need to be sure you get paid fast. For example, you might want to create:
- A payment workflow you follow with every customer—like estimate, contract, first payment, second payment, third payment, invoice, reminder, a series of demand letters, a set point where you pick up the phone and call the customer, and a set point where you send the account to a debt collection agency (more on that later).
- An estimate template. (Commusoft makes creating and sending estimates extra-easy, by the way, not to mention invoicing and tracking payments.)
- A contract template.
- An invoice template.
- A friendly reminder template to send before the payment is due. (Accounting systems like Xero—which integrates with Commusoft—often let you send automated email reminders to customers.)
- Demand letters to send when payment is, say, 10 days late, 20 days late, and so on.
Customers who refuse to pay can stress you out big-time—but if you get organised, at least you don’t have to also stress over creating a demand letter whilst staring at an empty bank balance.
Too Late for All That? Here’s How to Handle Non-Paying CustomersToo late for all the previous tips? Here are quick tips on how your plumbing business can handle non-paying customers—or at least avoid going crazy (and bankrupt) over the situation.
- Give them a ring.
- Hold the job hostage.
- Write a demand letter.
- Don’t name and shame.
- Call in the collectors.
- Let it go.
- Learn more, earn more.
Now, on to the details.
Give them a ring.
Your payment is two days late, five days late, seven days late—before it goes into full-blown delinquency mode, call the customer to find out why the payment is late and work out a payment plan if needed. Keep the call friendly, but be sure to record all the details in case you need a paper trail later.
Hold the job hostage.
Do you enjoy working for no pay? Then don’t do it. If a customer agreed to pay in installments and they’re late in paying one installment, stop all work until you have your money.
Holding the job hostage will likely get you paid faster because it puts pressure on the customer, who certainly doesn’t want to have a half-finished job on their hands. At the very least, if the customer refuses to pay you won’t keep digging yourself into a hole.
Write a demand letter.
Often, a scary-looking demand letter on business letterhead will inspire a delinquent customer to cough up the cash. Be sure to include:
- The name and address of both your business and the non-paying customer.
- How much they owe.
- The full details of the situation: Work completed, contracts signed, payments already made, any attempts you’ve made to collect already, etc.
- The legal basis for your claim—in other words, why does the customer legally owe you the outstanding amount?
- What steps you’ll take next if you don’t receive the payment in a certain amount of time.
- Dated copies of all of the paperwork involved.
Use a mailing option where the customer has to sign when they receive the letter, so you can be sure they got it.
The nidirect website has an article with more details on how to write a demand letter that gets results, plus information on mediation, the Small Claims online service, and hiring a solicitor.
Don’t name and shame.
When a customer refuses to pay, it’s tempting to post the sordid details on social media like LinkedIn, Facebook, or Twitter. Hey, even it doesn’t pressure the customer into paying you, you’ll be doing a good deed by warning other businesses about this shady dealer, right? (Not to mention, it feels pretty good when all your plumber buddies jump in to confirm what a jerk the customer is.)
That ‘good deed’ could cost you. Here’s why:
- It could be illegal. ‘The Office of Fair Trading advises against using social networks to pursue debts—and warns that doing so could be seen as harassment of the customer’, according to an article on the My Credit Controllers website.
- You could be sued by the customer for defamation.
- Prospects might be wary of working with a plumber who uses shaming tactics to get paid.
Instead of venting on Facebook when a customer refuses to pay, use the tips in this article—and if it comes down to it, you may need to take the step below.
Call in the collectors.
At some point, it will become clear that the customer has zero intention of paying up. If the outstanding amount is significant, it can be worth it to call a debt collector.
You can have a debt collector under contract to handle all your payment needs, but you can also hire them to chase after individual late payments. For example, My Credit Controllers has an unpaid invoice collection service where you’re not charged a fee until they collect, and Thomas Higgins Solicitors will send out a legal demand letter for you for a flat fee.
Let it go.
All your efforts to get paid have failed, and you’re about to call in a solicitor and take it to the courts.
Drop that phone. First, think about whether it’s worth the time, money, and hassle to go the legal route to collect the debt. Even if you’re owed a huge sum and you have the cash lying around to hire a solicitor, dealing with this one con artist of a customer will steal loads of time and energy you could be using to serve your good customers and find new business.
As much as it may hurt to let this crook go, remember that they’ll be followed by bad customer karma forever—not to mention that word gets around, and soon they’ll find there’s no one left who’s willing to work with them.
Learn more, earn more.
Instead of spending your time chasing after customers who are clearly never going to pay, read up on how to improve your business—like our cheat-sheet of expert-approved tips and scripts for handling the most challenging customer scenarios. Just click below to get your free copy.