Question: How Do You Handle B2B Collections?
I have a nonpaying B2B customer, and it seems that suing or employing a collections agency may cost more than it is worth. Do you have any advice?
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Answer: Adjust Your Model to Pre-Payment
When I encountered this issue, I found that debt collection was ineffective, and civil court required too much time. We kept open invoices under control, but our worst year was still a $41,000 loss due to unpaid invoices (with an average invoice amount of ~$400). Ultimately, we switched our model to:
- 100% pay-up-front before starting production, or
- Buy with paypal credit (which puts the money in our hands right away), or
- Submit a state-backed purchase order (primarily used by school districts)
We had very little pushback from any reputable businesses. To help reduce the number of premature cancellations of a large subscription commitment, some systems such as DropBox, Front, Paymo, and Trello offer pre-purchase incentives for the full year instead of riding out the fee on a monthly basis. The end of the calendar year is a great time to promote these incentives.