While running a business, one comes across all kinds of projects and While running a business, one comes across all kinds of projects and clients, and one of the challenges many businesses and startups face is getting payments cleared. Some clients might postpone or delay payment after the project is completed, still others may end up not paying you at all. Being unable to recover debts is definitely not the ideal situation to be in, and that’s why it is important to be prepared for potentially unpaid bills. Here are 5 ways in which your business can stay prepared for any situations such as these.
1. Draft a legally sound contract:
Before you enter into any agreement with a potential client, ensure that you draft a contract that covers all possible situations that could arise with a client. One consideration is to include a clause for commencing the project only after an initial advance payment is made.
2. Interest on overdue amounts:
Ensure that you also include a term in your business agreement that lets you collect interest on overdue amounts. State the maximum rate of interest that will be charged and also include when this interest amount starts being charged to the client. You can easily get a reference rate by doing some research on what the terms are legally.
3. Recovery of expenses:
In your contract, you can also mention that you have the right to recover your costs and expenses on an unpaid debt. Ensure that you go over specific clauses and find out how you are covered under India’s laws. If the client is a registered company, it might be possible to sue them too.
4. Don’t provide credit the first time:
For all first-time clients, ensure that you get trade references, and take payment via credit card until they are established as a trusted customer. However, in case you need to make the decision to offer credit to a customer, ensure that you have everything down on paper, with the terms and conditions of payment, lapses, and the fine print before doing so.
5. Hire an attorney:
An attorney can help in terms of taking legal action if necessary against unpaid debts. He/she would have the requisite expertise in working out a suitable payment plan, as well as methods to track down uncleared payments, and this would be useful in case any unforeseen bad debts arise. When it comes to payments, companies need to be prudent in terms of the agreements they enter into, and also to ensure that they maintain a written record of any terms and conditions that they would establish with a customer. This helps to keep everything on record and prevent miscommunication. In addition, while communicating with a client who has defaulted on payment it is better to be polite while also being firm about recovering the amount.