I was recently featured in an article on Fox Business Small Business Center offering advice on how to overcome deadbeat clients. This is a crucial topic for anyone who’s thinking of starting a business, because the unfortunate reality for many small business owners is that not all of your customers are going to pay you. Running into deadbeat customers is a cost of doing business. Fortunately, there are many ways you can protect yourself and maximize your profits by avoiding and overcoming deadbeat clients.

Here are a few lessons from the Fox Business article:

  • Run a credit check: If you’re about to enter into a sizable contract with a new client, it often pays to run a credit check to see the client’s credit history. If the client’s credit is less than perfect, this could be a sign that they will be unable or unwilling to pay.
  • Ask for special payment terms: If you have doubts about a new client’s creditworthiness or willingness to pay, ask them to pay upfront (or ask them to pay a sizable percentage of the payment upfront).
  • Get it in writing: You should always work with a contract for each client. The contract needs to specify the expectations of both the client and your business, and protects the interests of both sides. If you have a written contract saying that payment is due 50% upfront and 50% on delivery, and the client fails to meet that deadline, then the contract gives you a written record that can be used to settle the dispute.
  • Offer incentives: If you’re worried about deadbeat clients, give them an incentive to pay on time or in advance. For example, you could offer a 2% discount for prompt payments and a bigger discount for advance payments. On the flip side, you can also charge penalties for late payments – but make sure this is clearly stated in the contract language.
  • Issue (polite) threats: Tell your customer that if they don’t pay you, you will contact a collection agency. Or threaten to give them a bad review on an online review site. If you want to bring out the “big guns,” you can have your lawyer draw up a demand letter seeking payment. People often want to avoid litigation or collections calls, so just by showing you are serious about getting paid, you can often get results faster from deadbeat clients.
  • Take them to court: If all else fails, you can take a deadbeat client to small claims court, but one drawback is that this takes time. If someone owes you $1,000, is it worth spending the equivalent of several full workdays going to court, waiting for a ruling, and then trying to collect the money that you are owed? You have to weigh the value of your time against the probability that you will be able to collect any money from a deadbeat client.

It was a great honor to be interviewed by Fox Business as one of their select business experts. Hopefully, you won’t encounter too many deadbeat clients in your business career, but it does happen. Just remember to defend your rights, demand what is fair, and keep the cash coming in so you can avoid becoming a deadbeat customer yourself!