Ask HN: How do you handle clients who don't pay on time?

I run a supply role at a company during the day and I'm building a B2B tool on the side. The problem I keep running into — both at work and in my family's business — is that chasing overdue invoices is manual, awkward, and nobody has a good system for it. Most small businesses I've talked to do one of three things: send the QB/Xero auto-reminder and hope for the best, send a WhatsApp message themselves when the reminder doesn't work, or just let it slide because the relationship feels more important than the cash. The second one is interesting to me. WhatsApp works — it gets read, it gets replies — but it's completely manual and people do it inconsistently. Curious what founders and operators here actually do. Are there tools that work? Have you found a workflow that doesn't feel like you're begging for your own money?

I've worked in industries where customers don't like paying invoices.

Fortunately, the widget we sell is good enough they'll want to buy again within a few months. So our rule is pretty simple - we won't send another batch of widgets until they've paid the overdue invoice for the last batch.

And if they've dicked us around too much in the past - we send them a proforma invoice. They can pay before we dispatch.

just let it slide because the relationship feels more important than the cash

What use is a 'relationship' with a customer that doesn't pay?

Sure, you might hope to parlay a good relationship into larger orders in the future. It's natural to have dollar signs cloud your vision when you're talking to someone at a well known multi-billion-dollar company. You hope this person ordering $500 of widgets for a prototype will place an order for $500,000 of widgets in due course.

But the truth is, for every person with the authority to place that huge order there are 100+ interns building one-off prototypes during 3 month summer internships. If your contact can't get a $500 invoice paid, then you're not talking to someone with the authority to spend $500,000.

In the early days of my business, when we were more of a service company than a software company, I read this quote and it informed everything that we did:

Nothing depreciates faster than the value of a service rendered. <<<

Always get paid in advance. We always had more customers than we could service, so we only worked on stuff that was already paid for. Customers became their own bill-collector when they were trained from contract signing that is how things work. Terms like "2/10 Net 30" will never make your life easier than simply getting paid first.

larger customers expect net-terms (e.g. net-30) and have monthly accounts-payable processes. No customer pays instantly.

my strategy is to raise prices, then offer a discount for customers who pay net-7 and even greater discount if they pay in advance.

fun story: I once got $400,000 from a famous venture capital firm who was buying a service from my company and they paid 6 months in advance for 5% discount. In other words, dilution free financing from a VC fund !!!

I often hear about this attitude of putting the customer first. Having excellent customer service. The one thing people forget though, customers pay. When you're not getting paid according to the terms, they're not a customer anymore, they're a thief.

If your customer is legitimately having a money issues or something else, and they are actually a customer, they will contact you and attempt to work something out. If they just ignore you, they are not a customer and should be treated as such.

If your customer is legitimately having a money issues or something else, and they are actually a customer, they will contact you and attempt to work something out.

Depending on customer personality, they may or may not contact you. It's also possible that if they're having money issues that they are freaking out, frozen, and scared to reach out. Though I'm thinking more of very small businesses here where it's more of a personal thing than a corporate thing.

On your payment reminder notes, when it really is late, you can consider putting in some wording that hints at "we know sometimes small businesses can have financial issues" and genuinely suggest there are ways you can help. If it's a small friendly business in a scary time, they might be genuinely relieved that you show that you care... while simultaneously, if it's a business that isn't in financial trouble at all, and was just trying to stretch out their Net 30 to earn extra interest, they may be so outraged by the implication that they are "poor" they they will pay up quickly just to show they are not poor.

It won't help every case, and this only happened very very rarely to me (so I'd defer to the judgment of others). But depending on your customers, this could be a useful approach to have in your toolkit.

My friend recommended to put a small percent late payment fee, stated in the contract and on each invoice.

Haven't really used it yet because we don't have a problem with late payments, but I do think it would work, because our B2B customers are usually very appreciative of saving small percentages when we offer it, and unlikely to just give up that money by being late.

it doesn’t work if they are insolvent, and it can also backfire if they see this clause as a way to get a cheap cash loan. you should still have the clause but i think if this as a tool for the collections attorney to use if the customer defaults.

I don't have much advice here because ever situation is different and the sensitivies of asking is different with every organization. What's worked for me is being absolutely direct and honest in the situation and the urgency of needing pay. Often times the other side doesn't realize how much it affects you, and shattering that illusion is what's needed. In other words -- you kinda need to make them feel like an asshole for not paying you. Sometimes it doesn't work, though. At some point you will need to raise it as a legal issue and begin refusing work.

Check your local law. In some jurisdictions, you can charge interest, or penalties. You can be gentle about it - give fair warning, reminder that intrest is starting to accrue, etc. But customers don't generally want liabilities to increase, so will prefer to pay before extra costs are incurred.

It depends a lot on your relationship with the customer as well, I guess. Some may get butthurt about it, for others, your relationship is with a person in a different dept to the people organising the payments, you can send interest notices to the finance dept without worrying the person who wants your services.

I require payment upfront before work starts. Simply make it clear you are not a bank and are not extending credit. If your invoices are small setting up a recurring credit card payment is an option with various payment platforms.

Is it a Saas? Either way, Call them. Yes call. Ask for accounts payable. Ask what the problem is, missing invoice, missing approval etc. Ask them how to fix this. Ask them for a payment date. This is what credit controllers do all day. Don't threaten, just ask.

If they are evasive, then state when you will be withdrawing the service.

Next month before it is due, call them, check they have the invoice on their ledger and ask the payment date. The squeaky hinge gets the oil. Eventually it gets easier to pay you than deal with your calls. Accounts payable people often have more discretion than they will ever let on about who gets paid when. They put the people who call higher up the list to save the aggravation

Escalations. Tell them that if you continue to receive late payment then you will have to withdraw credit and put them on advance payment.

Tell them you will have to 'take it further, which may include collection activities' or 'recoveryaction'. Deliberately broad.

Hold future work.

Write them a letter stating their account is in hold. Enclose a copy of the statement of account and invoices.