Debt is one person’s liability, but another person’s asset.” – Paul Krugman
Overdue and non-payments are pain points for the successful operation of any business. There can be a number of reasons behind this, especially during these uncertain times. Regardless of your business’s size, debt collection in the UAE is still considered a complicated problem. However, to maintain a healthy financial condition, businesses must incorporate an effective debt management system. Let us understand how to prevent this situation and collect overdue payment.
What to do if customers are not paying bills or invoices?
Most people resort to aggressive ways for debt collection when things go beyond their control—however, it’s always better to deal with non-payment issues head-on. You must adopt a proactive approach to prevent problems related to debt collection.
- Know your client: For every new client, background research is a must. Thankfully, it is not that tough these days because of the power of the internet. Apart from this, you can ask people working within the same industry and mutual acquaintances. Check with local authorities if there is a registered complaint against the person. A thorough screening can help prevent your future troubles.
- Discuss all costs and payment terms: Trust is a necessity in all customer relationships. The trust is built only when there is a clarity of expectations at both ends. Before you start the project, discuss in length about the project cost, future cost, possibilities of cost escalations, and probable reasons behind it.
- Create a secure contract or agreement: Based on your discussion with the client, you can go ahead and hire the services of an experienced lawyer to create a contract. The legal contract ensures that the rights and legal obligations of both parties are understood and agreed upon. The agreement must address:
- Payment Schedules (e.g., monthly, quarterly or percentage-wise)
- Preferred mode of payment agreeable to both parties
- Scope of the project which includes actual work, timelines, and deadlines
- Rules for late payments or non-payments (e.g., advance payments, late fee if any)
- Refunds in scenarios where the service expectations are not met
Your lawyer can guide you if there is anything else that needs to be added depending on your business’s nature. You must get all the details and place them in a contract or agreement. For small and online businesses, it is suggestive that you prepare standard terms and conditions in advance. In case of a breach of contract, you can take legal action with the help of a corporate lawyer.
- Ask for advance deposits: Depending on your reputation in the market, you can ask for security deposits. A security deposit is a protection to the seller or service provider that can help you cover damages. It also acts as a motivation for your customers to adhere to timely payments. Moreover, if your customer fails to make payments under certain circumstances, a security deposit can mitigate the losses. The amount for security deposit can be decided based on current industry standards and discussion among both parties.
- Advance payments: This is another positive arrangement where you commence the work only after the receipt of part payment by the customer. This way, both parties will gain a certain amount of incentive to adhere to the project’s timeline.
- Send Invoices right away: Every business works on the invoicing system. When you have too many customers, it’s easy to lose track of payments. It is always recommended for the benefit of the business, to be prompt with invoice submissions.
How to approach a client who refuses to pay?
In ideal situations, preventive measures can ensure smooth debt management in an organization. Many times regardless of what preventive techniques you incorporate, there are some customers who don’t pay.
So, if your clients don’t settle invoices, then there are some steps that you can take:
- Evaluate your choices: When you run a business, at every step you are required to do a cost-benefit analysis. An overdue payment also demands the same from you. If the delinquent amounts are just a minute percentage of your business income, it is advisable not to spend resources and energy on it.
- Charge late fee: No one prefers to pay extra. Thus, a late fee clause in your agreement can ensure timely payments. Set up a system and timeline that clearly defines the policy about a late fee to your customers. For instance, if the payment is delayed by one month, you charge 5% extra, if it is delayed further by two months, you charge 10% extra, and so on.
- Give alternative payment options: Some customers genuinely struggle with problems that are beyond their control. In such situations, you can always come up with a payment plan. Negotiate an amount that the customer can afford and pay in smaller installments.
- Hire professionals: Professional debt collection agencies bring an array of services on the table. A firm with experienced debt collectors, especially with extensive knowledge about the region’s business environment, can be highly advantageous. The scope of debt collection agencies is elaborate. You can expect the following services from a premium debt management agency:
- Invoice Management: Timely submission and reminder for the payments.
- Debt Collection: Negotiating with customers on your behalf and giving them alternative payment modes.
- Skip Tracing: Tracing absconding defaulters in and outside UAE (with the help of affiliated network)
- Legal Services: When all alternatives fail, the agency lawyers can represent you in court for recovering the pending amount. It also involves legal complications related to bounced cheques.
- Loan recovery: Some debt collection agencies also provide help related to loan recovery, credit card payment collection, etc.
Small business owners usually suffer more because of overdue payments. At times it is crucial to let the client know that they can’t take advantage of you. The support of an experienced debt management law firm can not only empower you; it also takes away the stressful tasks off your shoulder. The professional lawyers can also help you when you are forced to put the matters into the judiciary’s discretion.