In the last few days, one person asked that I talk about the issues behind not paying for services rendered:

In thinking more about what to say about this issue, I realized I’m the wrong person to be writing about this issue. Here at GeoMetrick Enterprises, I’ve never, not one time every, had a customer just not pay an invoice. I have never had to forgive a debt. With that said, I do have a few things I can pass along to those businesses that are just starting and wondering what kinds of problems they will have to deal with.

The Biggest Customers
It’s common that, the bigger the customer, the more likely their initial payments will be slow in coming. This makes those payments late. My experience is this – if you want to work with the biggest companies in the world, you have to be ready for the fact that getting your company properly setup in their invoicing system takes time. I’ve had it take as long as six months, in some cases. Once everything is properly setup with these mega-companies, I find that payments tend to be pretty routine. Meanwhile, rather than fretting about it, just be aware that this is the case. If you can’t afford to go without payment for as long as that, don’t do business with these large companies. They move slowly and it will take quite an effort on your part to get these things straightened out. This is just a part of having these large customers.

One caution I will add is that the biggest customers also tend to be strict on when and how you are going to send them invoices for your work. In all the years I’ve been in business, I’ve never been curious to know what would happen if I didn’t follow their rules. As such, I tend to think that I’ve increased my likelihood of being paid and being paid on-time by always making sure that I follow their invoicing rules.

The Smallest Customers
I have had small customers who are manually processing checks and who routinely lose invoices or have other problems on an ongoing basis. If you have such a customer, you have to realize that their process is flawed and decide whether you want to continue to work with them. I can remember a customer  who usually paid on time but, two to three times a year, the payment would go past due and, in every case, it was because they had misplaced the invoice.

The other somewhat unique aspect to working with very small customers is that, because their process is manual, they sometimes pay extremely early just to get the payments done and out of the way.

Everyone Else
Most companies have a Accounts Payable department that you send your invoices to. While they don’t seem to have any real automation that I’m aware of from the outside, they seem to make the entire process fairly routine. If you want predictability, pick the customers that are neither extremely large or extremely small.

Subcontracting Payments
I’ve heard theories floating around that subcontractors shouldn’t be paid their invoices until the contracting company gets their invoices paid by the customer. I haven’t been in this situation and I don’t have any idea if it’s widespread.

For me, the main consulting firm of the preferred vendor is just another customer to me. They have to pick their net terms and, if they aren’t an acceptable term – if they’re too far from what my other customers are using for payment terms – then I just don’t accept them. I have no control over someone else’s invoicing practices nor how they deal with their customer when the customer has late payments. As such, I don’t think it’s practical that I would bear any of the additional risk of trying to combine the risk of their invoicing process with mine.

In addition, the company that has the contract has the opportunity to make any of the real money from the customer. As such, they must also bear all the risk. It would not be fair to ask anyone else to bear any of that risk. If they can’t bear that risk, if they don’t have the funds to cover the initial project costs, then they have no business taking the project, to begin with.

More on Non-Payment
If you were hoping for more tips on what to do when people don’t pay up, here’s the expert:  Get Paid!: As Much as You Deserve, and On Time

Gloria Metrick
GeoMetrick Enterprises

2 Thoughts to “What Happens When Customers Don’t Pay”

  1. Howard Eichenwald

    I’m not in the Lims area, but that may also help with a new customer/client. Part of your agreement (depending upon the size of the customer/client) is to present a small invoice of $50 or $100 as an advance against the first invoice. That allows the accounts payable department time to set you up for regular invoice payments. You also find out quickly if they enter your correct address into their accounts payable system. No one likes their check sent to the wrong place.

    Knowing the cutoff dates and managers approval limit can sometimes be key to getting paid on time. You hire or sub contract for help and your monthly invoice is now larger than the managers approval threshold, then it takes a higher authority to approve the invoice, and when the higher authority goes out of town for weeks, your invoice get held. The solution is the the bill twice a month within the project managers approval limit.

  2. I too have never NOT gotten paid – neither in my own personal consulting practice nor in small startup corporations I helped create. Perhaps it is because I mostly deal with mid to large size established companies that don’t stand to gain much by stiffing me. BE AWARE that many such companies now require NET/50 or NET/60 terms.

    There have been administrative foul-ups. My favorite was an existing customer where, when entering a new PO, Purchasing reversed the names of the vendor contact (me) and the approval manager. So for several months they were sending emails to me to approve my company’s invoices not to the manager. I assume: Gee this is nice they are sending me courtesy copies. When we eventually figured it out they cleaned up everything within a week.

    I do know several hardware consultants working with small startups that have gotten stiffed. The clients just don’t have the money. The process is endemic in “construction” where subs sometimes go bankrupt waiting for payments. The Commonwealth of Massachusetts has trouble getting snow-plow contractors because they haven’t paid the people from last Winter.

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