October 11, 2013
About the Author:
Long time SEO enthusiast, IT & Billing director of FrostSEO UK, involved in dynamic web design since 1996, published in popular magazines across Europe. Huge fan of Star Talk & Burn Notice. Follow at @tmpkn
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One of the most unpleasant aspects of any business is dealing with defaulted payments. Every day your customer invoices are overdue is a day you have to answer to a dilemma of how to handle his account. On one hand, your costs for that particular campaign are only going to grow. On the other, if you stop providing the service, things might turn for even worse for your customer.
Let me state the obvious here: your main focus should be on keeping the default ratio at the lowest possible level. This can be achieved by understanding the reasons behind why certain types of customers end up in collections.
First, let’s look at technicalities: there are payment methods which by definition are more risky than others. And as far as uncertainties of financial conduits go, there is one undisputed king of all the payment headaches: a credit card. Those little plastic tickets come with the longest list of potential problems: chargebacks, frauds, unreliable payment operators and the list goes on. Does it mean you should refrain from accepting CC payments? By all means – no. You just have to follow some simple rules that will protect your business from dishonest customers.
There are two major factors when it comes to safety of CC charges:
Your choice of card processing company - Depending on who you choose to validate credit card payments for your service, you might end up either in the shadow of risk surrounding every single transaction, or the safe zone of assurance that your money is in safe hands. But safety usually comes with a price. The deciding factor here is who makes the call when it comes to approving incoming payments. If it’s the processor, you have to be prepared that they will reject every single card they find suspicious. Also, you will not know the criteria they use to make the call. That might cost you a few angry customers asking for explanation as to why their payments were refused and you being unable to provide them with a satisfactory answer. And this will happen sooner that you anticipate, because the service you provide is considered to be of very high risk. There are no valuable assets to go after should the payment be charged back. There is no plug to pull that would put the payer’s business on hold. For these reasons alone, you might be asked to hold some of the money in the processor’s account for up to 90 days before you will be able to transfer it back to your account.
The criteria you use to accept payments - Some CC processing facilities will make it your responsibility to decide which operations should be approved or not. It might sound like a better deal, but do not be fooled by this opportunity – if someone is going to trust your judgement with their money, they will most probably secure their business by asking you for upfront deposit to cover for potential chargebacks. And now it’s on your head to verify every new card, and at the end of the day it’s your money you’re playing with. Big players can afford to dedicate one desk to so-called e-security and have a professional handle data verification. For smaller firms and freelancers, it’s mostly about whatever due diligence you can do in the short period of time you can allocate to the task and trusting your own instincts. The least you can do is make sure that the name on the card matches the name on your services agreement. If it’s a business card, make sure to match the company name – this should be a simple job, as you are working on their website and probably know a thing or two about people behind it.
No matter which way you decide to go, common sense is your best friend when it comes to CC payments. Unfortunately, there is also a serious amount of fine print to go through with your processing company in order to really understand when you’re out of potential danger with the payments. Some might give you a false sense of comfort – for example PayPal might clear funds to your account only to deduct them in future if they encounter a chargeback. So always think twice and if you come across a card that looks suspicious, it’s better to assume that it is. Remember that with PayPal you can always reject the CC transaction even after the funds have been cleared to your account.
Your customer can simply be suffering from bad business and not be able to sort out his payment on time. If you have no reasons to doubt that this really is the case, you will be facing a very delicate situation. If handled properly, it might seal your future relationship with this customer for years to come. There will be more about this subject in the follow-up to this article about dealing with customers already in default. For now let’s just focus on how to avoid this problem in the first place.
In general, there is not much you can do about how your customers run their companies. Even though in certain cases you might have some insight as to their current situation, it would be very unprofessional to inquire about their internal matters. However, there are some factors that you, as an SEO provider, can and should look at closely to help your customer with his business. This – after all – is the ultimate goal of SEO.
To begin with, the very agreement you have with your customer can have serious impact on their performance. Search Engine Optimization, when done properly, can bring significant number of new visitors to his website, and you have to ensure these visitors will be valid leads that your customer can work with in order to increase his ROI. That’s why a proper keywords selection is crucial at the beginning of a new campaign. Large SEO efforts can present a considerable burden on your customer’s budget, especially if they are just starting with a new brand. You have to make sure they invest their money in the way that generates more valuable leads to their business, as opposed to more random visitors to their website.
Sometimes it might be tempting to sign up a customer’s account as soon possible. However, you have to realize that as an SEO agency, it is your responsibility to protect his investment, even if that means an extra job of convincing the customer to change his choice of keywords. We at FrostSEO pride ourselves with our Free Quotation procedure, which puts the incoming inquiries directly in the hands of our SEO specialists. From the very first moment, the process is about delivering a beneficial service, not just about sealing the deal.
But eventually, you will come across individuals whose intentions are only to exploit your goodwill and get something for nothing. Unfortunately, in the SEO world the usual rules of due diligence do not always apply. For instance, many customers signing up with FrostSEO are only just starting their business, or are launching a new brand of their products. It is only natural they are seeking help in promoting their yet-unpopular websites. And if the service we offer was of a different nature, for example banking products, it would be quite usual for us to ask for extra securities during this initial period – many banks will in fact limit your access to certain facilities (including credit lines) until they have a longer relationship with you. This is very different for SEO, where most of the customers have only just appeared on the business map.
So if we accept that fact, what else can we look at to protect ourselves from frauds and defaults? Well, it’s the same as with regards to CC payments: in many cases you simply have to trust your business instincts. That said, there are some indicators which might suggest you are conducting the deal with someone of a shady nature:
Freebies: Being asked to deliver any service prior to payment or even signing the agreement should always raise a red flag. Your offer should be designed in a way which does not leave any shadow of doubt on what could be expected after signing up. I wrote a separate article about Guaranteed SEO services which covers the subject of how to put customer’s worries at rest.
Late First Payment: If stories about payment issues sound too good to be true, that’s because they usually are. Especially if it’s about the first payment and there are other extraordinary circumstances like having to apply the optimization changes now, “because our web designer is going skiing tomorrow”. Your trust towards new customers should allow you to prepare the campaign and maybe even assign a copywriter to their account, but do not mistake trust with irresponsibility. Once you complete the optimization for your unfortunate customer, they will most probably vanish into thin air and you will be left with uncovered costs.
Suspicious Payments: If you notice that the funds have been cleared, but the wire comes from somebody else, or even a different country, do not hesitate to ask questions. This is especially important with regards to credit card payments, when name mismatch should be enough of a reason to reject the payment. With other methods you are not risking much after the funds have been cleared on your account, but that doesn’t mean you should be less cautious. There is a reason behind your customer being unable to sort out their invoice using their own details. Finding out what that reason is now can save you a potential headache in the future.
And finally, you have those customers, who mean you no harm – they simply love to pay late. It’s in their blood, it’s their thing, their signature move – however you want to call it, the fact remains: they always pay late.
To some, SEO bills are not of big enough importance, as they do not represent a “vital” service – i.e. something that can be turned off with spectacular consequences, like a web server or office electricity. Others might have their own reasons.
But in many cases, they don’t even realize how late payments can hurt you, as an SEO provider. In many people’s minds, Search Engine Optimization just happens to happen, most probably due to magic or other inexplicable forces of nature. Reality is way more harsh – high quality SEO requires resources, such as servers, software licenses, domains, copywriters, PPC managers, and so on. To run a successful campaign costs money, and it’s not always possible to prepay – take our Dynamic SEO as an example: you don’t know how much money is due until after a month of running the optimization.
There is always a chance that an honest conversation with the customer will help them understand this simple fact, and they will start paying on time. But you might fight out that it’s not the lack of will that causes the delay, but rather the busy mind of someone trying to run their business.
A great way to help in these cases is to offer a payment subscription (for fixed amounts) or pre-authorization (for dynamic ones). Luckily for us, PayPal supports both options. Subscriptions or pre-authorizations can be easily set up, and once approved by a customer, they require no further actions on their side. Your invoices will be sorted out automatically every month, charging their PayPal account.
In my experience these four factors are the most common causes of defaults. Understanding the reasons behind overdue invoices can be a game changer, but no matter how well your accounting department does their job, there will always be single cases of customers falling into collections. How do you work out these situations to your benefit? I will be addressing this question in the second part of this article – How to deal with accounts in collections?