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What's the best way to deal with non-paying or late-paying clients?

I've recently had to deal with clients who pay extremely late or simply avoid paying us entirely. I'd like to try to avoid lawsuits, and I'd also like to maintain as positive a relationship as possible with my clients. What can I do to prevent late payments, and how can I deal with non-paying clients (before I resort to suing them)? What has worked for you, and what do you recommend?

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For existing client - for late payers or not paying for services offered
Option 1 - to stop any further service offerings (if your contracts covers this part) until they clear all dues/ when payment is made (or paid negotiated part with remaining part to be paid in future with commitment) then to reinstate the work/service offerings
Option 2 - for every new work - before starting the work make an agreement wrt Payment plan like work completion slab based payment plan and at any part they dont pay then stop the work until payment is made
Risk is either way exists as your investment to full fill the services will be in dilemma as what will you do when you have build your team as per client need and he/she stops paying and you need to abort the work as well for client its a pain to run to other vendor when work is being stopped in between.
Option 3 - Advance payment based work - take the work only payment is being made 100% in advance
Option 4 - keep dependency on every delivery of work like dont deliver the source code until full payments are being made. These needs to be part of your contract which ever approach you take.

Yes, it is painful to loose the client, sometime as business relationship continuity, we may need to sacrifice/bear the impact due to some delays. As well to continue the work with risk considering a future business scope (if any you visualize). If this work may not fetch me money, then may be a future awaiting project can cover this lose. This can be analysed based on Customer account future scope holds.
My opinion to take the lawsuit way at the end when there is no way out and the payment recovery is critical for my existence.
Hope this helps.


First and foremost you must develop a good working relationship with each client based on mutual respect, trust, likability and your competence to perform. Having developed this relationship you need an engagement letter that clearly articulates the legal expectations and ramifications regarding payment and a termination clause. With this information if there is any concern about late payment (30 days after billing for example), make the call and find out the status. In many cases there was a mistake. In other cases your making the call brings this to the attention of the appropriate party. In some cases there may be extenuating circumstances.

In short stay on top of all accounts receivables.

As a landlord for 7 years I never had a payment over 5 days old. I sat down and explained the implications to my tenants one on one when we signed the lease. In one case where the couple was going through a divorce and she was going to pay half the rent and she was leaving up to him to pay the other half of the rent, I explained what I would have to do. That was after the rent check was late two days. I didn't wan to have to file in local county court, have an unlawful detainer on both of them that would follow their credit score for the next 7 years. I explained this to her and indicated I would do that within two days if I did not have the other half of the payment The check was received the next day.

As a business owner today, I always make a personal call within 30 days on all normal billing. I have been in my current business for 3 years and have followed up on all late payments and then received payment timely.

The moral of the story is to be proactive and know your client base. I have clients that I have not taken because I was not comfortable with the elements of trust with the potential client. Keep that in mind with the customers that you serve. Be proactive, understanding and empathetic. Work with your clients. The bottom line is that you need to be paid to pay your bills too.


Hi Colette,

Personally I prefer a contract describing terms and penalties prior to any transaction. For the first transactions before confident is establish, books examined and reference check, you can also request payment upon delivery then put in place a 2/10 net 30 or 2/30 net 90 depending of your industry and confidence factor for this entity. The discount can bring some client to pay early and some other to benefit from your credit .

Hope this helps,



Many years ago I worked in the collections department for the electric company. I was also responsible for setting up new accounts. Business accounts always had to have a security deposit, if they didn't have 2 years of history with us.

I quickly discovered that the people who didn't put up a fuss about the security deposit were not going to be a problem. Those who didn't have enough money to pay it were the ones I'd be seeing again as overdue accounts.

When I started my business I chose to bill in advance. Nothing is done or shipped unless payment has been received. Again, people who balk at paying in advance, tend to be people I'd be chasing 30 days after the invoice was created.

My policy to bill in advance saved my home as 2 of my biggest, most profitable and longest tenured clients went bankrupt within a few months of each other back in '08 / '09. Each of those clients were in the $500k - $1m annual sales for me. Sure the loss of the clients hurt enormously, however I was not left hanging for unpaid services or products.

We continued to work until their prepayment was used up and with ongoing communication they knew that we'd be stopping as soon as it did. Since they were dealing with all sorts of unhappy vendors at the time, our approach actually made their lives a bit easier.

As a small business person you cannot support non-paying or late-paying customers. Make a policy of pre-payment or payment before "it" leaves your business (whatever "it" is)

BTW, prepayment or payment at the time of sale is more common than you think. I'm thinking hard and there are very few bills I pay in arrears -- both personally and in business -- is paid in advance, at the time of delivery or within 7 days of invoice (mind you that's the way I roll too!)

Lawsuits make the lawyers rich, so if worst comes to worst, I'd give it to a collection agency. Good luck!


Request that payments be made in advance of work provided. That sets the tone. If select clients are consistently tardy (behind the typical 15 day or 30 day period from invoice submission date), you're well advised to fire those clients.
Aside..sending a reminder and cc'ing accounts payable representative at the client, along with cc'ing designated CFO or COO, as well as the account rep you work with and including a friendly "Per the engagement agreement executed by your firm, it is understood that payment for services is to be within no more than 30 days. Regrettably, we have been subject to ongoing delays re invoices and in order for us to continue representing your interests, we must respectfully insist on payment within no more than 3 business days. If there is a problem that we are unaware of, please call to discuss.."
also..phoning instead of corresponding often is more successful.


Hi Colette,
if you've only recently had to deal with clients that pay late, then you've been pretty lucky. Clients/Customers pay late everywhere and all the time; which is essentially why company's have collection departments.
To you're question though
The absolute best way to prevent customers from paying late is not to extend credit in the first place. You'd be amazed by how many company's do not extend credit but rather operate on a cash and credit card basis. Unless you are dealing with larger reoccurring transactions, such as the case with an importer, wholesaler, or manufacturer, this is the best way to operate. Most all retail is done this way.
If by chance you are an importer and are handling larger transactions and credit is the only way then honestly there isn't any way to totally prevent this, but rather only means to control it.
The first and best rule is decide first how much credit you can afford to extend to someone. Base this on whatever due diligence you do on a new customer. Once you've decided, stick to that limit, and don't let the excitement of additional orders push you to extend more that that. Collect on the existing ones first. Don't be afraid to upset a customer by controlling credit. The good ones understand, and you weed out the bad ones.
The next best rule is to teach you're clients to pay on time by being aggressive in you're collections from the start. By aggressive I don't mean pushy or obnoxious, I mean active and consistent. Send out statements the 1st of every month and remind them.
The third is to use "stop ship". This means if someone is late on their payments don't be afraid to cease service until they pay the bill. I always recommend you notify someone that is about to have their service curtailed. Everyone hates learning their service was stopped without be notified. Don't make that mistake.
Some other things you can do
Offer a discount for prompt pay. If you can justify 3-4% for quick pay it can make the difference. 1 & 2% don't make the big impact as they used to.
Give prompt payers a reward after they have proven themselves. Some get extra discounts, lower price, or special deals once in a while...but be sure to remind them its because of their payment record.
And lastly, don't feel funny thanking the prompt pay business owner. It goes a long way to reinforce the behavior.
Bottom line, most people will let payment slip if you let it happen. If you must extend credit, don't assume it will come. Collection is simply part of the business process, comes with territory. Its up to you to reinforce payment behavior and collect.
Oh, and you are absolutely right, collecting in lawsuits is almost a waste of time (except small claims). Don't even think about it as a good way. Unless you debt approaches the six figures, its often not worth the attorneys fees.


Maintaining an open line of communication is critical. The first thing you want to do is find out why your client isn't paying you. Are they not getting paid in a timely fashion from their clients, so cash flow is the issue? Are they struggling financially and bit off more than they could chew? Do they not pay the bill so they don't really have any ability to get you paid more quickly? If it's the third answer you want to find out who pays the bill and the time frame in which vendors get paid.

If the answer is the first or second option then you have a couple of choices. You can add a penalty for late pays. You can write a letter and copy your lawyer at the bottom, or you can have a lawyer draft the letter for you. Most business owners don't intentionally mean to not pay their bills, but when you're running a small company cash flow is usually an issue, and what we forget is that when we don't pay our bills, it hurts other small business owners.

I know this doesn't help with slow payers now but in the future, make it easy for clients to pay by accepting credit cards, if you don't already. And, in the future, don't be afraid to pay a deposit. Finally, if you deliver your products, ask for payment at time of delivery. And, if it's hard for you to ask for money, consider getting someone else to do it. Outsourcing the jobs you struggle with doing can be your greatest business success tool. Sorry, you're going through this,


Non-payment buy your customers can kill your cash-flow, which will ultimately kill your business. I’ll address some steps you should try to collect from your late payer then make some suggestions as how to avoid this in the future.

You don’t mention whether payment is late for merchandise or services rendered, or what type of business it is, so I’ll try to give general guidelines. In this economy, it may not be a malicious attempt to withhold funds. Regardless, you want to be paid.

First, let’s try to collect the outstanding debt. Communication and Customer Service are the keys. Contact the customer to determine if he made a payment that you just didn’t receive. If that’s not the case, ask if there is an issue with the merchandise or service he received. If no issue exists, ask if you can work with him to begin payments. If a late fee was imposed, offer to waive it if payment is made in the next 3-5 days.

This is where your Customer Service skills come in. You may have to swallow your pride and tweak policy, but your goal is to get paid. REMEMBER THAT while negotiating payment. Even offer to accept payment via credit card or PayPal.

If contact by phone is not possible, try email or text messaging. If sending late notices by snail-mail, send it in a distinctive envelope so it doesn’t get tossed with junk mail.

To avoid similar situations in the future, have a clear policy for accepting payment after delivery of goods and/or services.

If the customer is making a large purchase (which is relative), consider running a credit check or ask for references from other vendors. Again, for large purchases, always get a deposit until the customer establishes a great credit history with you. If he’s got poor credit, then ask for payment up front. Losing the sale may not be as bad as losing your shirt.

For most customers, offering “terms” is a win/win scenario. You get paid quickly and he saves 2%. Typically, 2/10 Net 30 is the standard. If he pays within 10 days, he gets a 2% discount, otherwise he must pay within 30 days. On the 31st day, his outstanding bill starts accruing interest and/or late fees. Make sure all terms are clearly stated and understood.

Offer a multitude of payment options including credit cards and PayPal.

Have an internal policy in place that states after a predetermined period, say 90 days late, the account goes into collection. You’ll lose some money, but you’ll sleep better. Unless your company is large enough to have a Collection Dept., you need to concentrate on your core business, not chasing late payers.

Good luck in your quest to get paid. If you need help drafting a policy, please let us know.

Kevin E McCormack
NivekTek Business Services

Anonymous User

Colette. The best way is to lay out the payment terms from the start. I'm not suggesting that you haven't done this but when you are nervous of alienating a client, it's easy to let them slip. Once you've established the "pain" of why the client needs your services, explain the terms in detail. Even suggest a deposit payment and keep any further terms short, 7 days for example, until you establish a longer, more permanent and fully trusting relationship. Also, research "conflict resolution", so you don't endanger the relationship in the longer term and your payment, full stop, in the shorter term. If you provide a good service, they will pay.


What I have done in the past in an attempt to avoid those situations is to provide terms of when the payment is due, and provide specific charges that will be applied in the event the payment is late. Once the invoice is delinquent I would call the client and offer to reduce/eliminate the late charges if they paid within a short period of time. Another tactic I have used in companies I have worked for was to refuse help until a payment schedule was agreed to by the accounting department. I was in a service desk environment, so clients were calling for assistance. Delinquent accounts were flagged and when they called for support, I would indicate that I had to transfer them to accounting first. When they agreed to pay past bills, accounting would transfer them back to me. It was very effective. Hope that helps.

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