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Employees are the backbone of any firm. A solid employee base makes a strong firm and helps the firm in achieving its long-term goals. In today’s competitive world, where every firm is in search of the right talent, to make their base strong, where poaching employees have become a common practice, companies must hold their top talents tight enough. They must make elaborate plans to retain them in the long-run as everyone knows hiring someone completely new is a long, exhausting and an expensive process. So, having employee retention plans in order, planning extensively on employee retention formulas and how to calculate them are something that must be included in the company’s strategic planning. So, let us start with understanding what exactly the employee retention rate is?

What is the employee retention rate?

Employee retention is generally expressed as the percentage of the workforce that has stayed with the company for a fixed period. It is the employees that stuck around in the firm till now. It is often expressed as a statistic as it is such an important matrix for measuring HR analytics. Retaining employees is a huge task for employers and is a constant work to keep the employees motivated so that they choose to remain employed and provide benefits to the company. So, effective employee retention strategies must be in place to reduce employee turnover and the costs associated with it.

Why do employees leave jobs?

There are quite a few reasons as to why do the employees leave their jobs. So, some of them are:

• Lack of job satisfaction

• Too much workload for the employee to handle leads to employee burnout

• Bad relationships with co-workers and bosses

• A feeling of not being recognized at work

• Lack of flexibility

• No career advancement

• The bad work culture of the firm

• Insufficient compensation

Why is employee retention so important for the firm?

Employees are the most important asset of any firm. So, keeping the back at any firm must be of utmost importance. So, employee retention is important due to the following factors:

• Reduced time and cost wastage of the firm: Hiring new employees is a big blow to the company’s resources in terms of both time and cost, and companies want to minimize it as much as possible.

• Keep the productive flow of the firm going: Employees who work for a longer period builds up a bond with the company and the team and are more skilful and they how to contribute to the firm’s success.

• Reduced training times: New employees require huge training periods to get accustomed to the firm’s business, so the entire process has to be repeated.

What is the formula for the employee retention rate?

Calculating employee retention rate is a mammoth task, and there is a simple formula that most firms use to arrive at an answer. So, the formula is:

Employee retention rate formula = (Number of employees who stayed with the company for the entire period/ Number of employees in the firm at the start of the period) *100

OR

Employee retention rate formula = [(Total number of employees – Number of employees that left)/Total number of employees] *100

So, any 2 of the 3 inputs are required for calculating the retention rate:

• Number of employees at the beginning of the period
• Number of employees who stuck till the end of the period
• Number of employees who left during the period

How to calculate the employee retention rate?

Let us understand how to calculate employee retention rate using an example:

Example:

Suppose the company hired 25 employees in April and 5 of them were replaced by the month-end. So, what is the retention rate for April?

Total no. of employees = 25

No. of employees who left the firm= 5

So, no. of employees still at the firm = 25-5 = 20

 So, retention rate = (20/25) *100

                           = 80%

One important thing to note here is that, while calculating the retention rate, if

some of the employees have left the firm and then they are replaced, then these new employees are not taken into account. Here, as the number of people hired, fired or replaced are not taken into account while calculating the retention rate, so to have a clear idea about the employee landscape in any firm, the employee turnover ratio must also be taken into account.

What is a good employee retention rate?

There are no such hard and fast rules but a benchmark to see how the firms are performing as compared to the other firms. Firms can have a good retention rate, but if the few people who are leaving the firm are the top talents, then the firm might not be in good shape. A good employee retention ratio is more than 90% for all sectors worldwide. But in recent years, the retention rates in India have dropped to 80-85% and is dropping further, which is a topic of worry.

What is an employee retention strategy?

Employee retention strategies are practices that the firms follow to retain their top talents and prevent them from leaving the organization. The company aims at minimizing employee turnover as higher turnover rates are expensive and time-consuming. Losing an employee affects the team morale, reduces productivity and creates a wreck in the workflow if the leaving employee is someone at a higher post like a manager or higher. So, employee retention strategies should be in place in every firm, and every firm must make sure that they have the least turnover percentage.

What are some of the effective employee retention strategies?

Some of the effective employee retention strategies are:

• The retention process starts with the recruitment process by identifying the employees who will stay for the long haul – Looking for candidates who stayed longer at their previous jobs, having qualities of loyalty, patience, perseverance must be the first pick as employees for the firm. Job hopping candidates are risky as they may leave the firm as soon as another opportunity knocks on their door.

• Providing education support and clear advancement in careers: Many employees leave because they feel stuck at their jobs with no way out, and thus they do not see any advancement in their career. So, firms that provide continuous promotions make the employees realize that they are a crucial part of the firm and are valued. Also, helping the candidates in developing the right skills for the job role helps in retaining employees.

• Providing the right kind of benefits to the employees: Benefits and perks play a huge role in keeping the employees satisfied and happy in their jobs. Providing stock options, flexible work options, generous paid leaves, health insurance, and many more is one of the most effective ways of retaining employees.

• Keep the communication channels open between the lower level and top-level management: Doing this makes the employees realize their opinions and voice matters, and they can provide useful insights into important matters. And people tend to stay where they are a matter for a longer period.

• Using data, AI to work and leveraging technology: Use employee’s data to predict which employees are most likely to leave and then work on retaining them by working on the factors which will cause them to leave.

• Provide a nice and happy working environment to the employees: A happy employee stays the longest, and a good work environment is something that contributes greatly to that.

Employee retention is a crucial matter for every organization, and retention strategies must be carefully planned out so that the firms have the strongest workforce. Improving the retention rate every year must be the firm’s goal, and careful thought must be put into it.

The HR team probably plays the most important role in any organization i.e., managing the workforce. Handling their grievances and looking after almost everything be it the job descriptions, onboarding, salaries, benefits packages, leaves, company policies, the HR manager handles everything like a pro. A well-functioning HR plays a key role in deciding whether the firm is a success or a failure. So, the HR department needs to be handled with utmost care. So, how do you decide whether the HR people are taken care of appropriately or not? This is the role of HR audit. Making the firm aware of its pitfalls and strengths, an HR audit does it all. So, an in-depth overview of all the firm’s activities to understand its strengths and weakness is what an audit does and must be taken seriously.

What is an HR audit?

In layman’s term, an HR audit is kind of a test to evaluate the performance of the human resources department of any firm. It takes a look into all the tasks and activities performed by HR ranging from policies, documentation, systems and everything that comes under the HR preview. The main motive of any HR audit is to look into the areas that are causing troubles and how can be improved. An outsider can be hired by the company to do an external audit or the firm can ask the HR department to perform an internal audit as well.

Some of the areas which the audit department looks into are:

• Hiring process
• The onboarding process for the new employees
• Salary and benefits packages
• Performance reviews of the employees
• Termination of tenure of any employee
• Job descriptions of new job openings
• Exit interviews if any, and many more

What is the need for conducting an HR audit?

An HR audit makes sure that all the processes in the firm are running smoothly and also makes the firm aware of any kind of pitfalls that they have. So, the needs of conducting an HR audit regularly are:

• Measures the effectiveness of the HR department and its management of goals, missions, objectives and strategies.
• It serves as the assessment tool and thus provides a basis for improvement in the future.
• Helps the HR department in proper understanding their roles and how to deliver them efficiently.
• Making sure that all the company’s workings comply with the laws of the government.
• Reviews the resource allocation for the HR department.
• Evaluates the performance of employees and staffs.
• Ensures proper implementation of all the policies and seeks explanations in case of success and failure of the HR.
• It serves as a measure of check and due diligence for all the investors and stakeholders of the firm so that they get an assurance that the company is working efficiently.
• To enhance the brand value of the firm in the market with the perfect audit results.
• Important for delegation of authority and to decentralize the power distributed at the centre.

What are the different types of HR audits that the companies can undertake?

There are many different types of HR audit that the firm needs to perform. Let us look at them objectively:

• I-9 Audit: An I-9 form must be present for all the employees in the company. This form is a legal requirement for all companies to verify that all of their employees have valid employment authorization. This audit checks for any mistakes in the filling of this form.
• Policy or handbook audit: This audit reviews all the current and upcoming policies of the company and makes sure that they comply with the laws. It also makes sure that all the employees are well versed with the policies and everyone has a copy of this and the employer has a signed acknowledgement from everyone.
• Legal Compliance audit: This makes sure that the company’s practices are in sync with the employment laws. This is performed to make sure that there is legal compliance with the reporting laws and regulations. It looks into leaves structure, health and safety, disability structure etc.
• Departmental or Functional audit: This audit keeps on changing focus from one department to another to make sure that all the divisions within the company work on regulations be it payroll, performance management or any other.
• Salary and working hours audit: This looks into the problems in salary structures and the working hours of the employees. It reviews the legal working hours, salary calculations, benefits computations, overtime calculations etc.
• Safety audit: This looks into the necessary safety measures taken by the firm for its employees’ health. It makes sure that the firm limits the risk to which it exposes its employees.
• Hiring process audit: It reviews the hiring process of the company and makes sure that they are efficient, non-discriminatory and fair.
• Employee training audit: This looks into the employee training and development programs at the firm and what new programs to introduce and how to improve the old ones.
• Benefits and compensation package audit: This looks into the minimum wage, compensation according to the company’s objectives, employee benefits and whether certain information like health insurance benefits are kept a secret or not.
• Exemption audit: This makes sure that all the employees that are classified as exempt from overtime are still qualified to receive the exemption.

What is the process of conducting an HR Audit?

The HR audit process is a six-step checklist that needs to be followed.

STEP 1: Determining the scope and the type of audit that needs to be conducted

Determining the scope of the audit is the first step, where which all kinds of audit needs to be performed is mentioned and if the audit is performed for the first time, a comprehensive review of all the policies and HR practices needs to be done, or if the audit is for a specific purpose then that needs to be stated clearly.

STEP 2: Develop the plan and the audit questionnaire

Careful documentation of all the answers that need to be found by conducting this audit, must be done. All the specific questions that need to be answered must be included, goal identification, assembling the audit team and forming a timeline for completing the audit must be made.

STEP 3: Collection and analysis of data

Collection of all the applicable documents and forms outlined under the scope, review and analyze them to gather insights about the current HR practices in the company.

STEP 4: Formation of the report

The next step after analyzing all the information collected is documenting all the findings in the form of a report of the audit. This report must include all the strengths and the weaknesses found during conducting the audit and the recommendations on how the weaknesses can be converted to strong suits.

STEP 5: Creation of an action plan

After the completion of the audit, all the executives should meet with the audit team to discuss in detail how the shortcomings found can be addressed and improved. Some of the action plans include changes in the policies, training practices, correcting non-compliance issues. The audit process must be kept confidential.

STEP 6: Evaluate the progress after the audit

The audit team must continuously monitor the corrective actions taken by the firm to improve its shortcomings and create review checks periodically so that all the practices in the firms stay compliant.

An HR audit can be thought of as periodic checks that the form must undertake to make sure that they are on the right track. The audit must be kept confidential and must not be subjected to unnecessary disclosures. Every firm must undertake an HR audit once a year so that the performance of the HR department can be regulated.

Hiring is one of the most crucial decisions that any firm has to make. It has to be strategically planned, curated and executed so that it addresses all the needs and demands of the firm. Making the right hiring strategy and aligning it with the business’s long-term strategy is of utmost importance. For hiring the perfect fit for the company, a common matrix needs to be decided for assessing all the candidates, and a large applicant pool must be there to choose from, but nowadays many sectors are suffering from a shortage of applicants, and there are various reasons for the short-supply of talent amidst the rising demand. So, let us explore some of the reason why the firms are suffering from a shortage of applicants and what is the correct hiring decision process that the firm must undertake.

Shortage of applicants – The new dilemma

A new and disturbing trend emerging in the market is that finding quality candidates for job positions is taking a huge time, and there is a shortage of applicants for job positions. The landscape is changing due to several social and economic factors. Job openings are there in the market, but skilled people are not available who can take up the role. There is a skill gap that is widening. Many companies also have an outdated recruitment strategy that needs to be polished and radicalized. A serious problem that needs to be looked after, let us look at some of the reasons for the same.

What are the reasons for the Shortage of applicants?

• A talent shortage: A required talent for the job opening is scarce, and most of the people lack the technical skills required for the job.

• Rapid innovation: With rapid innovation, more and more people are finding it difficult to adapt to the changing requirements and thus lack the skills.

• The millennial challenge: This generation finds it easy to job hop, and thus no candidate sticks at the job long enough, and there is a perpetual need for candidates to fill up the positions.

• The lower brand image of the firm: One of the reasons might be that the company has a lesser-identified brand image, and the job advertisement is not reaching many people.

• Candidates lack experience: Companies need an experienced candidate, and people are with no experience, such an odd combination!

• Increased competition amongst firms: Nowadays, firms compete with one another to hire the best talent, and some might win, some might lose! So, there is a shortage of skilful applicants.

• Presence of culture “quirks”: Some companies might have some characteristics in their work culture, which makes it difficult for the new hires to gel up with. Thus, retention rates for these firms are quite high.

• Outdated recruitment strategy: Being out there on social media, in the eyes of job searcher, makes the company more visible rather than using the age-old method of using job listings in newspapers.

So, owing to the above facts, many firms are facing a shortage of applications on their job listings. The major problem that the companies can handle from their side is having a great hiring decision process ready that is more according to today’s tech-savvy world and improving their brand name in the process so that more candidates want to apply for the position.

What is a hiring decision process?

An efficient hiring decision process is the step-by-side guide for an organization for identifying the needs of the firm, searching from the talent pool, interviewing the candidates and finally hiring the perfect fit who is also the most qualified for the organization. Most companies, regardless of their size, have a well-thought-of and panned hiring process already in place. Every hiring process has the same basic steps required for hiring, which the company can customize according to their needs and the industry they are in. So, to make the correct hiring decision, a comprehensive step by step guide must be followed.

What are the different steps in a hiring process?

As already discussed, the hiring decision is a carefully laid out, step by step approach, which every form needs to follow for efficient hiring. So, the steps are as follows:

STEP 1: Need Identification for hiring

The hiring process begins with the identification of the need to increase the workforce either for filling up a new position or better manage the workload or expanding the organization. The key is to identify the kind of job role that needs to be filled and finding the appropriate candidate.

STEP 2: Make a recruitment plan

An essential step of the recruitment process is to devise the entire process, provide clear instructions to all the people involved in the hiring process about their roles, employees who will provide input, employees who will select the candidate. This step also involves how to make a clear job description, advertising the opening, reviewing applications, the process of taking the interviews and the final hiring.

STEP 3:  Making a clear job description

A job description includes job requirements, qualifications required, characteristics and the required experience for the specific job role.

STEP 4: Advertising the job opening

Advertise the job opening to the employees so that the position can be filled by internal hiring or publicize it on social media and various job sites so that external hiring can be done.

STEP 5: Reviewing of applications

The next step is reviewing all the applicants to eliminate all the candidates who do not fit the minimum requirement criteria, which can be done either by an ATS or manually by the team. Then the candidates are decided upon whose interview is to be taken.

STEP 6: Initial screening of the candidates

If the applicant pool is large, only the interview round won’t be possible for so many people. So, there must be some initial screening of the candidates, which serves as the elimination round for non-suitable candidates. This round may also have a phone interview round, where the candidates are interviewed to make sure that they align with the company’s values and to choose the candidates for the final round of interview.

STEP 7: Final interviews

Depending upon the company’s needs, there can be multiple rounds of interviews. Early interviews are generally based on the person’s skills, knowledge and work history. The next round of interviews can be group interviews which can be more in-depth or with team members to see how the dynamics between them will be. There can be more round of interviews with the specialist of that field, and the final round of interviews can be with the senior leadership team or the HR round, which is offered to a very small pool of candidates.

After all these steps, the hiring team must undergo some final steps to come to a final hiring decision. These steps are also included in the hiring decision process and help the company to select the best candidate for the job finally.  

How to make the final hiring decision?

Once the interviews and assessments are done, it is time to deliberate on the candidate’s performance and thus select the best candidate for the job opening. So, some of the steps that are involved in making the final hiring decision are:

• Check all the criteria that the candidate meets before hiring: Make sure there is a common matrix for assessing all the candidates on the list of the same factors. Make a checklist of all the criteria and assess all the candidates on them. Some of the factors can be: the amount of experience required, number of skills, how quickly can the person learn without supervision, amount of training required, achievements and many more.

• Doing the background checks before making the final offer: Doing a background check provides the clarity required for hiring the person for good. Background checks can clear up any last-minute confusions that the recruiter might have.

• Get all the stakeholders on the same page: Make sure all the decision-makers involved in the hiring process are on the same page and thus choose the candidate unanimously.

• Extend the job offer to the selected candidate: The offer letter must include salary, benefits, responsibilities, start date, conditions of employment, work schedule, remote working and many more. Some of the terms are negotiable, and some are not.

• Hiring the employee: The candidate is finally hired, and all the paperwork needs to be filled and sent to the firm.

• Onboarding: It lays the groundwork for any employee, and the company needs to make sure that this is a welcoming one. This makes sure that the employee has a clear idea about the responsibilities that are expected from the new hire.

So, by having the correct hiring process, the problem of Shortage of applicants can be reduced. Having a proper decision process in place not only helps the company to plan out their recruitment drive but also helps in saving on last-minute resources. 

Hiring is the only way to incorporate new talent into the organization. New hires bring fresh perspectives and ideas and thus give a new direction to the firm and help the firm in achieving its long-term goals. So, right hiring is adeptly one of the most crucial decisions for the firm as one wrong hire, and team dynamics goes bananas! And the amount a wrong hire costs a company is something else entirely. So, talent acquisition is a strategic decision that must be carefully planned out and executed to make the most of the resources. As times are changing, so are the needs of the firms and the ways to acquire them. So, new talent acquisition strategies are in play in the market, and how this affects the hiring process in the future, we shall discuss this in this article.

What is talent acquisition?

As the term suggests, talent acquisition means searching, identifying and acquiring the right talent according to the needs of the firm. Most of the firms have a talent acquisition team who looks after the entire process of developing skill. They do everything from searching, identifying, assessing, acquiring and hiring candidates so that the candidates are the perfect fit for the firm. In most firms, the HR team is the one looking after the entire process, but many times they have a special department dedicated to this, and they work in tandem with the HR department to get satisfactory results.

A talent acquisition personnel must have strong communication and interpersonal skills that help them in dealing with so many candidates. Their skillset must include sourcing strategies, assessment skills, candidate assessment, compliance-driven hiring standards, and awareness about trends in hiring and best corporate hiring practices. They must be highly motivated who are result driven go-getters.

What is the importance of talent acquisition for a firm?

For any firm, people are the building blocks and thus, having a strong foundation matters the most. So, talent acquisition is one of the most important concerns of any firm. So, its importance includes:

• Hiring the right people who are the best fit for the company: Finding the right talent rather than finding quick talent is the main motive of the talent acquisition team. Hiring the right talent means a lower retention rate and thus is beneficial for the firm.

• A means to stay competitive in this war of talents: Acquiring the right talent adds value to the firm and provides an edge to the firm by continuously innovating. Eliminating risk and motivating the fellow workforce, the right hire helps the firm in staying competitive.

• Helps in saving time and thus making it cost-effective: Hiring the right talent once and retaining it for a more extended period of times saves time than hiring new talents for each position again and again! So, think wisely, acquire strategically! Be future-ready with all your hires.

What is the talent acquisition process?

Talent acquisition is an elaborate process that starts at the time when a job opening is hired in the company to the time someone is employed for the role. So, let’s take a deeper dive into understanding the process.

Step 1: Sourcing and Lead Generation

Starting with releasing a job opening and a job description, the talent acquisition team scouts social media, seminars, forums, conferences and many more to expand their applicant pool in search of the perfect candidate for the role. Having a large number of potential hires makes the process even more challenging and satisfying.

Step 2: Attracting top candidates

Having a strong brand value, promoting the company’s work culture and a comprehensive compensation package are the key ways to attract and retain top talents for the firm.

Step 3: Interview and Assessment

Recognizing the top skills required for the job position and interviewing the suitable candidates based on them to assess the candidates on an ordinary parameter.

Step 4: Checking the references

Cross-checking the references gives an absolutely clear idea about the candidate and also helps to clear certain last-moment doubts thereby making the acquirer ready to roll out offers.

Step 5: Selection of the most suited candidates

Based on interviews and assessments, make the final selection of the candidates who are the best fit for the job and the company.

Step 6: Hiring and onboarding

Hiring the right talent and giving them proper onboarding is the final test that can make or break an employee. So, the onboarding process is the last and the most crucial step.

What are some of the talent acquisition strategies?

As the importance of talent acquisition is well-known by now, so some of the important talent acquisition strategies that the firm must deploy are:

• Have strategic workforce planning in place: Having workforce planning in force means having a proactive approach towards talent acquisition. Having a predefined plan means that the firm is well aware of its needs and can divert its resources in the actual acquisition of talent rather than in planning.

• Building a positive and happy work culture: A corporate culture is an embodiment of a company’s values, beliefs, symbols, rituals. Positive work culture is something that every candidate desires so, build a culture that encloses the core values of the company and makes every individual feel included.

• Make the firm a strong brand and cash in on it: Employer brand conveys how strong a company is and what kind of workforce the company has. So, make sure that the firm has a well-defined brand and is communicated to all the stakeholders for faster identification.

• Use data analytics to be on top of the game: Use data to forecast the candidates required, have an efficient applicant tracking system (ATS), clear metrics to judge candidates upon and align the business goals with the acquisition strategy.

• Expand outsourcing of clients: Having an elaborate reach so that different kinds of talents can be reached differently. Use different kinds of media, academic programs, seminars, forums to reach a wider pool to choose from.

• Search for talented candidates: Different job roles have different requirements. So, hire candidates that can be easily trained for different skills and show an interest in the kind of work. Hiring a talented candidate is easier than hiring an experienced one as he/she might be rigid in the way of working.

• Collaborative hiring: This trend is on the rise as many departments work side by side to hire professionals as it is both cost-effective and improves the quality of hire thereby reducing the turnover rates.

How can talent acquisition strategy be aligned with the business strategy?

The key to organizational performance lies at the intersection of talent strategy and business strategy. The alignment requires an analysis of the firm’s objectives, strategic and operational goals. As employees play the most important role in all these objectives, they are the key to achieve these business goals, so hiring the correct talent that helps in the fulfilment of plans is an absolute must!

Building a strategic plan of hiring according to the business goals so that they have the perfect relation between them right from the start is the correct way to go ahead. Having a good mix of external hire with the internal employees to have a balanced approach and perspectives towards business problems is also essential. Hiring talents equipped with ever-changing technologies that can help the company be in the competitor’s race is also required.

So, having a well-defined plan in place can go to great lengths in helping the firm acquiring the right talent. Talent acquisition works for the fulfilment of both short-term and long-term goals of the companies and thus plays a crucial part and must be treated with utmost importance.

Everyone expects to be paid for the services that they provide, whether in money or in-kind or by the method as described in the contract. Every business has some clients or customers who won’t play by the rules. The odd ones, who always make the job difficult. The ones who make the payments late or even better won’t pay at all! How disrespectful is that? This is a common problem that most firms face. It is a classic never-ending loop! One of the biggest problems faced by the financial department of many organizations. Handling these complaints is a messy job, and these late and non-payments have a serious impact on the running of firms. There can be many ways to deal with such non-paying clients that we will discuss in detail going forward.

What are non-paying clients?

Well, as the name suggests, a non-paying client is a client that refuses to pay his/her outstanding amount owed to the firm even after multiple reminders sent to them. These are the people who won’t pay their long-overdue invoices even after multiple efforts by the firm to reach them either by calling, emailing, or even reaching their place. If even after so many efforts, the individual is not ready to surrender the amount owed, then the company can take various extreme steps to get their payments like hiring a collection agency, going to a lawyer for seeking legal help by filing a lawsuit and many more.

How to handle non-paying clients?

There are many soft options that the firms can apply if a non-paying client comes on their radar. These are the steps that generally do not involve help from the legal department and can be tried by the firm itself. So, some of these hacks to try on are:

• Draw up a contract and state clear due dates: To avoid any confusion, there must be a legal contract in place with all the important details like when the payment is expected, the terms and conditions of the services, and the timeline for the completion of the work. The date of payment must be in bold, clear and simple language, and the client must be well aware of it. Every legal contract must have the following inclusions:

1. Contact information: Email ids, addresses, phone numbers of both parties  must be included in the contract for transparency.

2. Revisions: If the nature of the work is as such that it requires constant revisions, so the limit to the number of revisions must be included in the contract.

3. Deadlines: The start date, the end date, the delivery date, specific milestones- all of these must be mentioned for any project in the contract.

4. Intellectual property: It protects the clients from any copyright issues as well as allows the firm to include the project in their list of works.

5. Exit Clause: One of the most critical section, where the grounds of termination of the project are mentioned if anyone (the client or the firm) decided to back down from the project.

6. Financial terms: The most important section, which safeguards the firm from defaults in payment. So, the late fee charged, money-back guarantees, discounts, partial up-front payments are all mentioned in detail in this section.    

• Add on the late fees to the already uncleared dues: Directly threatening someone with consequences can have a reverse impact on the client, and they may further refuse to pay the dues. While some of the candidates may have a genuine reason for not paying, levying a late fee might tempt them to pay at the earliest if they do not want to face even harsher consequences.

• Polite reminders: Send reminder mails to the client as soon the due date is over, to make the client aware that the due date is over, keep the tone professional, re-emphasize the amount to be paid, the modes by which the payment can be made, the payment due date and any late fees added to the payment model.

• Call up the client: Reaching the customer through the phone is the next step. Here also, try and be professional and polite and ask the client of the reasons for not being able to pay on time and try to devise a solution together. Try to get the client to agree on a future date by which the payment can be made.

• Confront the client directly: The next step involves going directly to the client and having a talk face-to-face so that the matter can be resolved most efficiently. Try to reach a mutually decided date of payment from the client.

• Offer lucrative payment methods: Offering options such as payments in instalments by charging some nominal fees can be provided to the client so that the strain to pay such a huge amount can be eased on them.

• Stop any future services to the client: This is a smart option in which the firm stops providing any service to the non-paying client till they pay their dues. In doing so, they further save their own time and money by wasting them on a non-paying source.

• Hire a collection agency: Now is the time to go to a third party if the client still hasn’t coughed up the money yet. Usually, collection agencies charge a huge amount of fees, up to the extent of 50 per cent of the collected amount, so pre-analysis must be done if the entire process is worth it or not.

• Time to take out the big guns!

Can legal actions be taken against non-paying clients, and if yes, what can be done?

Even after so much pestering and reminders is the client is not ready to pay the dues owed to the firm, then the company has no other options but to resort to legal help. The legal contract that the firm draws up before the beginning of the project gives the firm the right to resort to legal means if the client fails to pay its dues. If the amount due is significant, then hiring an attorney or taking the clients to a small claims account or filing a lawsuit in the civil trial court will be a viable option. So, YES! Legal actions can be taken against non-paying clients.

• Send a demand for a payment letter: Before filing a lawsuit, a formal demand letter has to be sent to the client, which includes the reason for the client being in default, how much is the firm owed, demand for the payment by the specific date and warning for a lawsuit.

• Let the attorney do the talking: Get an attorney involved and seek his/her help on how to proceed further. A lawyer can give great advice on how to handle these kinds of sticky situation. Lawyers will also advise on where can the lawsuit be filed based on the specifics of the situation. Threatening the client with a lawsuit is generally scary enough for the client to pay back their dues.

• Going to a small claims court: Going ahead with the lawsuit, the first thing that needs to be decided is which court to go to. Small Claims court is generally the least expensive one, the least time consuming one and the best option. Most of the firms seeking to collect their debts go to the small claims court to take its help. Here, the process of dealing is simple enough, so most firms do not need to hire a legal attorney. There is a limit on the debt amount, which can be settled in the small claims court, which ranges from $2500 to $25000. If the client does not show up, then the firm wins the case by default or in case of a hearing. The result comes out on the same day.

• A Civil lawsuit: If the debt amount is larger than the limit prescribed by the small claims amount or the case is a complex one, then the firm can lodge a lawsuit in the civil court. These cases might last for several days and are more formal ones. The firm might also require to hire a lawyer to represent it in the civil court. The court fees, lawyer’s fees, the amount of time spent to get a ruling all of these factors must be taken into account before filing a civil lawsuit.

• Arbitration: Instead of filing a lawsuit, arbitration is a quick and easy way to get the payment from the client. It is overseen by an arbitrator and is much less formal, and the arbitrator’s judgement can be enforced like that of a judge.

A non-paying client is an unnecessary burden that most businesses have to bear. Taking legal actions against them can be taxing, costly and time-consuming. So, the best way to deal with them is to prevent having non-paying customers by doing a thorough background check before entering into any project with them. Dealing with non-paying clients is a difficult process, but it is a part and a parcel of running a business and hence, has to be handled tactfully.