Avoiding Unpaid Invoices By Motivating Your Customer To Pay

To make sure you get paid, your credit policies should appeal to the customer’s self-interest.  Offering discounts and charging penalties can serve as the carrot and stick.  This article will discuss how to avoid debt collection for unpaid invoices by motivating your customers to pay.

Avoid Unpaid Invoices Through Discounts And Penalties

Customers who choose not to pay are making a business decision, usually to save money.  To change the calculation, you need to make that choice expensive for them.

To do so, your sales terms should charge interest on past-due invoices (usually 1.5% to 2% per month), plus attorney fees if you go to collections.  Thus, the choice is no longer whether or not to pay, but whether to pay what they owe now or pay more later.  And when they prioritize which creditors to pay, avoiding interest and attorney fees should put you higher on the list.

In addition, you can appeal to their self-interest with discounts for early payment.  For example, if your terms are Net 30, offer a discount if they pay within 15 days.  Whatever this represents in lost revenue, consider the value of cash flow and avoiding the time and expense of suing for unpaid invoices.

Avoid Unpaid Invoices Through Personal Guarantees

As a general rule, if your customer is incorporated, the owner isn’t liable for its debts.  But if the owner guarantees a particular debt, he is personally liable.

Many credit applications include a personal guarantee for the owner to sign.  Not everyone will sign it, and you’ll have to make a business decision about whether to insist on it, but an owner who guarantees a debt will normally give it higher priority.

By appealing to your customers’ own self-interest, you can motivate them to pay and minimize your need to sue for unpaid invoices.

For more information on debt collection for unpaid invoices, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.

This material is for informational purposes only and should not be construed as legal advice.  No person should rely on this information without seeking the advice of an attorney.

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