Subscribe To Our Daily Enewsletter:

How to Deal with Non-paying Customers: 6-Step Contingency Plan

Author: Jason Spugnardi

For companies where prepayment is required, business transactions are cut and dry: If the customer doesn’t pay, it doesn’t receive the product or service. Things aren’t always that easy when you’re an MSP, though.

IT services like SaaS, managed security, backup and disaster recovery, and remote monitoring and management are usually billed monthly, and shutting off services immediately after the due date isn’t feasible in most cases. At some point, however, it does become necessary. Here is a six-step contingency plan to help you determine when the time is right and how to handle this difficult situation.

Step 1: Call the customer. It seems obvious, but many past due bills can be resolved with a phone call. Approach the situation matter-of-factly. It could be something as simple as an expired credit card on file, a simple oversight, or an error. A polite reminder may be all that it takes to get payments up to date.

Step 2: Send an email and then a letter. If you’ve been trying to reach a customer by phone and can’t get through, send an email requesting payment. If you don’t get a response within a week, send another email and a letter in the mail. Explain you’ve been trying to get through to discuss the past due invoice. Although your temper may be flaring, it’s important to keep the tone business-like and helpful. Ask if there is a problem with your service or if there is an issue that needs to be resolved, and offer to help.

Avoid the temptation to complain about the customer to other customers or people in the community, and don’t turn the incident into a social media rant. It’s best to keep the dispute confidential to preserve both your customer’s reputation — and yours.

Step 3: Go up the line. If your usual contact is unresponsive after several attempts, find out who that person’s supervisor is and contact that person. If you do speak with someone higher up, get them to agree to a date by which you will receive payment.

Step 4: Flip the switch. By now, enough time has passed that the customer has probably received a free month — or more — of services. It may be time to consider freezing the customer’s account. Most customer agreements have clauses that need to be followed when turning off services for non-payment, so before doing anything, check the agreement for any steps that must be followed. Typically, you should start by notifying the customer by letter that you are planning to freeze their account if they don’t pay. The thought of no email or calendars may be enough to get them to act more quickly to pay their bill. If not, then it’s probably time to flip the switch. But, before you do so, it’s advisable to continue backing up the customer’s data so they don’t lose any valuable information.

Step. 5: Don’t make the problem worse. Prior to shutting off any cloud services, be sure the customer has all its data, so it doesn’t get locked out. I recently read about an MSP that had a managed services customer that hadn’t paid its bill in several months, which illustrates this point. The MSP got fed up and retaliated by turning off the customer’s Office 365 subscription, then deleted all the customer’s cloud data, including emails, calendars, and contacts. After being unable to access its data, the customer sued the MSP, and the incident was treated as a cybercrime against the customer. The MSP may have felt justified in its actions, but after being dragged through a contentious lawsuit and receiving lots of negative publicity, its actions could hardly be justified.

Step 6: Get help with payment recovery. If services are shut down, and you still can’t resolve unpaid bills, it may be time to consider using a collection agency. Again, inform the customer in writing that you intend to take this step and tell them it could put their credit score in jeopardy.  You can also take the customer to small claims court to try to recover payment, although this decision should be weighed against court costs and other fees to make sure it’s worth the effort — especially when there’s no guarantee the ruling will be in your favor.

Minimize future delinquent payers and nonpayers

Whether you’ve been in the situation or not, it’s a good idea to review (or establish) policies and procedures that minimize delinquent payers and non-payers. Make sure your contracts include specific payment terms, late fees, and subsequent actions you will take in the event of nonpayment, and you should always review your contracts with an attorney.

Shutting off a customer’s services is never a pleasant predicament to be in, but sometimes it’s the right thing to do. Having the right policies and procedures in place—including this six-step contingency plan—will make the timing and execution of your decision clearer and less stressful. And the sooner you get through this experience, the sooner you can find a replacement customer who values your services.


Jason Spugnardi is the financial controller for Intronis MSP Solutions by Barracuda. Read more Intronis MSP Solutions guest blogs here.

Return Home

No Comments

Leave a Reply

Your email address will not be published. Required fields are marked *