Chasing Debt: How Small Businesses Should Handle Clients Who Won’t Pay / Finances / Last Modified: February 22, 2017

Almost every SME will experience a client who won't pay. If it's handled properly, you could bring about a swift and peaceful resolution.

A client who won’t pay up is a frustration for any business, but when you are just starting out it can be particularly exasperating.

The need for cash flow is of immense importance at this stage of the process and you need to have paying customers to establish that.

It is a common occurrence that almost every business owner can tell you stories about.

Dealing with it for the first time can be uncomfortable, stressful and time-consuming so much so that one-third of SMEs don't bother to chase the debt.

There are a number of ways, however, that you can handle the complication of a stubborn client in order to bring about a peaceful resolution to the situation.

Related Article:The Keys to Business Financing Success

Ensure They Are Receiving Your Invoices

You would be surprised by how many businesses believe clients are ignoring their invoices when, in fact, they have never received them, to begin with. Before you take any further action and make false accusations, you must guarantee that your client knows about the payment. Check the email address is correct, telephone the office, even send a recorded letter if you must.

In the unlikelihood that they still have not (or claim to have not) received your invoice get someone to hand it to them in person. Even if they are in a different city, state or country to your business, courier services should be able to perform this on your behalf. By taking these steps you will know with absolute certainty that your client is aware a payment is due.

Related Article: Overdue & Over You: What Actions Can You Take When a Client Hasn’t Paid?

Offer Alternative Payment Methods

Clients may tell you they cannot pay their invoice for a number of reasons: the bank transfer hasn’t worked; the internet is down at the office; the cheque must have gotten lost in the mail. By ensuring your business has a variety of payment methods there is no excuse for clients not to pay their invoices. This can also be a preventative measure to facilitate quicker and easier payments in the future.

Your Client Cannot or Will Not Pay Their Bills

In the event that your business has now sent numerous payment requests, offered a variety of solutions and yet your client still has not paid, there are now only two reasons why they refuse to compensate you. One of these reasons is that they cannot afford to pay. If this is the case, your business may have to get a little creative to offer an alternative solution.

Social Triggers suggests you could put their account on hold until they have the money. You could also offer to be paid in weekly or monthly installments. The second reason is that they simply do not want to. They will have the money, they will have the means and they will know payment is due they just have no intention of doing it.

Related Article: Top Tips to Ensure Clients Pay on Time and Increase Your Cash Flow

Threaten Legal Action

When you have come to the realization that your client has no intention of paying their bills, either because they cannot or will not do it, business owners may feel they have few options left. However, businesses do have the law on their side as long as you have followed the correct procedure.

Remind your client that they are acting unlawfully by sending an LBA (Letter Before Action) outlining how and why you will take action. Many who are holding back on payment will give up once you threaten them with lawyers; they will comprehend that what they are doing is against the law and could lead to even greater costs in the long run.

Take Action Against the Client

This should be the very last resort for businesses. Taking legal action is complicated, lengthy and costly not to mention that you certainly won’t have repeat business with the client again once you have gone down this avenue. If you are owed $5,000 or less then you could instruct the services of debt recovery lawyers to take them to small claims court.

At the court, you can have a mediation whereby the dispute is resolved in a civilized manner or seek arbitration from a third party who listens to both sides of the case. You can, furthermore, report the client’s business to the state’s credit bureau, punishing them with a black spot on their credit record.

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