Dear Design Doctor
I really hope you can give some advice on what I can do about late and non payers!! Sadly with the state of things at the moment in the economy, it is becoming more common that buyers aren’t paying their bills or just taking their time about it. I have had late payers in the past and normally issue a second invoice with “payment overdue” or the like and that normally sorts it.
However I am now in a situation where a gallery has placed their first small order at a trade show a couple of months ago. I sent a pro-forma invoice, sent second invoice, e-mailed third invoice and am now phoning on a daily basis, but either the person I need to speak to isn’t there or it goes to answer machine. I have left several messages with no call back….what else can I do now?? Should I have done something differently?
I am sure any tips you could give in a blog post would help like makers out there. I will say again though if you could keep this anonymous.
Dean Shepherd
Expert advice provided for this specific problem by Dean Shepherd of Tax By Design. Dean is an accountant and tax adviser who helps creative entrepreneurs develop and grow their business.
“This is, unfortunately, a very common problem. Trade shows are a big commitment both in terms of time and cost but should be hugely rewarding. Don’t rate the success of a trade show solely in the number of orders you take. Use them to make new contacts, build a customer database, create a buzz around your products and get valuable feedback from an eager and knowledgeable crowd.
Of course when you get back to the studio and start the real work of fulfilling those orders, it can be very frustrating when the promised funds do not materialise. All that enthusiasm demonstrated by your customer at the show has suddenly turned into avoidance of emails and not answering your calls.
There are a number of ways to avoid this situation arising in the first place which I have outlined below:
- Always, always, always get paid at the show: When people are in front of your products, talking to you and feeling the buzz around your stand this is the time when they most value your offering above the cash in their pocket. At the very least you need to take a deposit at this stage so that they are both emotionally and financially committed to the purchase. A pro-forma invoice (Whereby the client pays at the same time as receiving the goods) is indeed essential – especially for first time clients – but, as you show in this case it still won’t avoid having to chase potential non-payers.
- Have them sign a standard contract: Trade shows are busy places. Buyers have a lot of stands to cover so they do not want to hang around. Once they have committed to buy then you need to get them signed up quickly and efficiently. Have pre-written contracts at the ready so that you can fill in the exact details of the order and get them signed on the day. Give them a copy to take with them and follow up the next day with a further written confirmation.
- Keep in regular contact: Thank your buyer for coming to the show and placing the order. Tell them when you are in pre-production. Let them have a timeline of each stage of the process and, most importantly, let them know when their final payment is due.
If all else fails and your buyer has simply changed their mind, for whatever reason, then you need to consider your next course of action carefully.
As this is a trade show then normal commercial terms are assumed. If they signed a contract then you have every right to have that order fulfilled, regardless of whether you are able to sell your goods elsewhere. This should be treated the same as any other business debt and I recommend the following procedure:
- Call them. It is far harder to hide from a phone call than it is from an email.
- Visit them. If they are near enough to warrant a personal visit then do so. You need to know what their intentions are before you waste any more time trying to convince them to buy your products.
- Send a ‘Letter Before Action’. This is a formal letter from a firm of solicitors stating that if the contract is not fulfilled within 7 days then formal court proceedings will begin. This letter is very effective and can cost as little as £2! Solicitors want your business so they will produce this letter for you very cheaply in the hope that you choose them for the formal proceedings.
- Court action. If you are owed money and a solicitor’s letter has not persuaded your customer to pay up then little else other than court action is going to be effective.
There are many ways of starting a court action yourself but I truly believe you should always use a solicitor. Most of their fees are recoverable from your customer and are simply added to the debt so it should cost you very little.
More importantly, you will not have wasted time, effort and emotional stress on dealing with this yourself. You are worth far more to your business as a creative, than as a debt-collector.”
Patricia van den Akker, Director of The Design Trust, also adds:
Here are some additional tips to help avoid this situation:
- Make your terms and conditions really clear and ensure you provide this with the order. See this blog post about writing your terms and conditions.
- State your rights under the late payment legislation: Include in all your contracts, orders and invoices your intention to impose your rights: “We will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.”
- Make sure that you have got a financial management system and process in place, e.g. always invoice weekly, and make sure you know when payments are late.
- When dealing with larger companies find out when they will pay. Larger organisations often only send out cheques on a fortnightly or monthly basis, which means that you will have to wait longer if your invoice is late within their paying cycle. Also, many of the larger department stores now set their own terms and conditions, and often they require 90 days payment terms. Make sure that your cash flow is able to handle this.
- You might want to do a credit check for certain businesses, prior to dealing with them.
- Give a discount for early payment e.g. 3% if they pay within 30 days. Often enticing them to pay early, instead of punishing them if they pay late works better!
- ‘The Federation of Small Businesses (FSB) has got a very good legal resources, whereby you can add their logo to your invoice and they provide ‘a late payer service’ to help you to chase late or non payers.
Have you got issues with late or non payers? What have you done that helped? Please add your comments below. Did you find this post useful, then please retweet it or ‘like’ it.
