How to Deal With Clients Who Don’t Pay

Paid_invoiceEven though you’ve put an effective infrastructure in place to ensure your invoices are paid on time, there’s always this one stickler client who’s just not paying up. Before you send out the goons, know that there are better ways to encourage your clients to pay their outstanding invoices. If your past-due notices have gone unanswered, it’s time to channel your frustrations into these steps to turn delinquency into dollars:

  • Communicate – Reach out to the client using whatever method works best for them — phone, email, text. Keep a record of all communication attempts. Once contacted, the conversation should be empathetic in tone. Find out the client’s story. Was there a problem with the product or service provided? Are they just really busy? Is there a cash flow issue? We all know that small businesses can easily get into a cash crunch. Allow them a chance to explain the reason for neglecting payment terms.
  • Create – Once the client’s situation is understood, create a solution that works best for everyone. Setting up an alternate payment plan could be an easy way to resolve the situation, and maintain that valuable client relationship. Even if the payments are a small amount per month, something is better than nothing. Most businesses, even those that are struggling, want to be upstanding and work with you in order to maintain a positive professional image.
  • Continue – No luck the first time you reached out? Continue communication attempts on a daily basis. Email and/or leave phone messages every single day. And put it in writing. In your correspondence, include a list of the days and times you’ve tried to make contact. If this is all to no avail, it’s time to take your communication to another level.
  • Confront – If you can, plan a visit to your client’s office. It will be much harder for them to make excuses when meeting in person. During your visit don’t lose your temper, make threats, or harass the client. Talk through the situation professionally and come up with mutually beneficial solutions.
  • Consult – Still no luck? It’s time to have your lawyer draft a demand letter. It’s not very expensive and it might prompt your client into paying without having to resort to more formal legal actions.
  • Complain – Reporting an egregiously late client to a business reporting bureau can provide a powerful incentive for them to pay. A formal complaint to bureaus such as Dun and Bradstreet, TRW and Equifax will become public record and likely impede the client from obtaining credit in the future. In fact, most will pay you right away to get the complaint expunged from their business credit report.
  • Collections – If all else fails, you can turn the debt over to a collection agency (who, by the way, will take a large percentage of the total amount owed.) Before handing it over for collection, try offering that same percentage as a discount to your client in order to settle.
  • Court – If you feel it is worthwhile, you can go to small claims court for outstanding balances of $2000-$7500. For balances that are substantially more than that, you can take it to superior court. Consult with a legal advisor and budget appropriately if you decide to take this course of action. The amount of time and money required may not be worth it, especially if the client is going through bankruptcy or closing up shop.

After a period of time, consider cutting your losses. Avoid throwing good money after bad and turn your efforts to more positive and profitable endeavors. Prune the delinquent client from your customer list, write off their debt and chalk it up to a lesson learned.
About the author:

Lawton Ursrey – Sage One awareness guru and fellow entrepreneur
I have a healthy disrespect for the impossible and a passion for the little details. While I run my own small business, I am also passionate about helping other small business owners. If I’m not running my business, or helping you run yours, then I’m probably playing guitar.

Follow me on Twitter.

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