How to Pay Business Debts When You Aren’t Getting Paid

how to pay business debts when you aren't getting paidBeing an entrepreneur is far from the easiest job in the world. From the very start, you have significant concerns: How will you fund your operations? Who can you trust to work for you? When will your business come out of the red? While many small businesses thrive, many more flounder, and sometimes, an entrepreneur has little comprehension why.

For example, sometimes small businesses have no dearth of clients: Workers are busy with projects and invoices are rolling out on a weekly basis. This should lead to business success — but sometimes, it doesn’t. For one reason or another, clients aren’t paying, the business isn’t making money, and you are all but forced to fold under incredible business debts.

Fortunately, it doesn’t have to end like that. If your clients aren’t paying what you’re owed, you should act swiftly and certainly to secure your hard-earned cash. Here are a few tips to help you stay afloat when you’re drowning in debt and unpaid invoices.

Consult Your Contracts

You should never accept a client and begin work before you have a signed contract in-hand. It doesn’t matter if your client is your closest friend or your most beloved family member; you must draw up a contract before you start work. A contract proves that both parties agreed to terms of service — including deadlines, costs, and payment timelines. Without a contract, you have little recourse for getting your clients to pay.

Even if you are certain you know the terms of your contracts, you should review them to make sure there are no loopholes or vague language that might have your clients confused. At the very least, this practice will ensure you have the records on hand to confront your non-paying clients with accurate information.

Negotiate Your Terms

You may not be getting paid enough to cover your business debts because you aren’t being aggressive enough during the negotiation period. Many new business owners suffer fears that if they don’t roll over and capitulate with demanded terms, clients will immediately leave and give service to their competitors. However, the contract is as much yours as it is theirs; if you cannot complete the work to your clients’ specifications and cost expectations, you should not take the gig. Instead, you should explain why you must charge more — e.g., your workers are more qualified, your materials are higher quality, etc. — and outline a specific payment period, so both parties are held to an appropriate standard.

Consider Factoring

Meanwhile, if your debts are piling up, you should seriously consider invoice factoring. This practice allows you to sell your unpaid invoice (or accounts receivable) to factoring companies. This allows you to get the bulk of what your clients owe while you wait for them to pay up, so you can devote more resources to paying down debts and acquiring new (read: paying) work.

It is important to note that factoring is not another business debt; rather, it is the sale of your clients’ debts. Thus, while there might be nominal administrative fees, you will pay little for the service. Your clients, meanwhile, might quickly rack up interest if they fail to pay your factor.

Cut Costs

It’s exceedingly difficult to cut costs in a brand-new business, but for any hope of relieving your business debts, you must be especially careful with your spending. Experts suggest identifying aspects of your business with high costs and cheaper alternatives. For example, instead of paying for a huge office, you might consider allowing workers to telecommute or renting a co-working space; instead of purchasing devices for every worker, you might institute a BYOD policy. Then, you can sell off unused equipment or scrap to recoup some losses and pay some debts.

Contact Creditors

While you work to encourage your clients to pay, you should also speak to your creditors about your financial situation. Lenders can be sympathetic to borrowers’ needs, especially if you have paid impeccably in the past. You might be able to acquire better payment terms or a reduced settlement amount if you ask the right questions and make the right pleas. The key to lessening your debt obligations is to make it clear to your creditors that the less you owe, the faster you can pay. Then you might gain some breathing room with your business debts.

Get Legal

If worse comes to worst, you can always hire an attorney to fight your battle for you. Your clients might respond better to a legitimate legal request for payment, and if they don’t, you can pursue them in court. However, you should avoid spending more on legal costs than your clients owe you — or else you will end up with more debts than you started with.

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