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

Business.com / Accounting / Last Modified: February 23, 2017

The first step to making sure you get paid on time is to be prepared and set expectations. After that, follow these steps.

If you thought balancing your budget on a the gig-to-gig lifestyle of a freelancer was tough, wait until a client hasn’t paid that invoice you sent them.Whether you want to admit it or not, it's just a fact of life for freelancers.

We will have to deal with working for free or facing deadbeat clients who make every excuse in the world as to why they haven’t paid the invoice. What’s a freelancer to do?Here are the most common actions that you can take if a client hasn’t paid their invoice.

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

Prevent Non-Payments in the First Place

Before you go after a client who hasn’t paid you, you should always make sure that this doesn’t happen in the first by taking the following precautions.

Do Some Research

If you’ve never worked with a client before, take the time to do a little research and find out who you’re dealing with. If you find out that this client has a history of not paying their invoices, then why would you want to get involved with them?

Ask your contacts if they know anything about your new prospect, Google their name or see if there are any complaints in sites like the Better Business Bureau.

Have a Contract

No matter if it’s your best friend or one of the most respected business leaders in your industry, always have a contract in place—or at least something in writing. The contract should address:

  • Payment schedule: such as a 40% deposit, 40% milestone payment, and 20% on completion.
  • Terms: are you expecting to be paid 30, 60, or 90 days after the invoice is sent?
  • Preferred payment method: do you accept checks, credit card, or PayPal?
  • The scope of work: what exactly are you expected to work on?
  • Deadlines: when is the project supposed to be completed?
  • Late payment policy: how much will you charge of the invoice is not paid on-time.

You can easily find service contracts for free and online. Here’s one from LawDepot.

Get Something Up Front

This may not always be an option, but if you can something up front you can at least absorb some of the hit from not getting paid completely. Asking for a deposit or retainer is pretty common for freelancers when negotiating with clients and will help cover the expenses or time that you already put into a project.While there are several ways to break-up your payments, asking for 50% up front is an industry norm.

Set Up Recurring Payments

If you have a recurring client, you can automate payments so that each month their credit card or bank account is charged. This is something that you’ll have to discuss with your client, but it’s more effective than sending out an invoice each month.

Sites like Due allow you to easily- set-up recurring payment. Here are a few guides that should help in your journey to becoming better at billing:

  • Guide to become a freelancer
  • Guide to becoming a designer

Know Who You Have to Contact

Even though Jane Smith may be you client or project manager, that doesn't mean that she’s in charge of the billing. Maybe there’s an accounting department or all bills are sent to an outside accountant. Make sure that you have the correct contact information for the person who handles the invoices and billing.

Keep Your Invoices Organized

This is invoicing 101. Have a numbering system in place, start with 001 and work your way up, so you can easily organize and manage all of your invoices. Not only is this necessary for tax purposes, you can always find the invoice if the client misplaced the invoice or if you have to take legal action.

Send Reminders

Is an invoice supposed to be paid tomorrow? Why wait until the last-minute and start charging the client a late fee? Send them a friendly reminder. There’s a chance that maybe it slipped their mind or they’ve been out-of-town.

Related Article: How to Turn an Ordinary Client into Your Biggest Fan

Actions to Take Against Non-Paying Client

You’ve taken all of the precautions and the client still hasn’t paid the invoice. What’s your next move?

Is It Worth It?

First things first, is chasing this client really worth it? Sure, it’s not fun when you aren’t compensated for your hard work. But, is your time and effort really worth that $250 invoice? While those smaller invoices definitely add up, if it’s only a small percentage of your yearly gross it may be better to just let it go. You could end up spending more money and energy than what the invoice is worth!

Stop Working

If the client has promised a payment in the past and still hasn’t made good on that, then stop work immediately. Even if the client gave you a down payment and missed the milestone payment, you need to stop working on that project until you’ve been compensated. That’s time that you could be spending on a project for a client who pays their invoices each and every time. Maybe after you missed that deliverable or withhold work, the client wises up and starts paying you in a timely manner.

Follow-Up

Don’t ever hesitate to send out an email if the invoice has not been paid by the agreed upon date. There’s always a possibility that the invoice was lost or misplaced. Maybe the client was on vacation or had a family emergency. You can’t assume that the client is a deadbeat because they didn’t pay on time.

Send the client a friendly, yet firm, email reminding them that the invoice is past due and that you help to resolve this solution as soon as possible. You should ask if there were any issues with the product or service that you provided as well. Maybe they weren’t satisfied and are refusing to pay - which they should have notified you earlier, but maybe they didn’t have time.

Contact the Client Directly

It seems tedious and embarrassing, but you have to keep contacting the person responsible for the invoice. If the client hasn’t responded to the first email, send them another email, again it could have been accidentally deleted. If you don’t hear back, pick up the phone and talk to the client directly.

If the client lives close by, then pay them a visit at their office. This doesn’t give you the right to harass or bother the client every day, it’s just a way to nudge them a little harder. After all, wouldn’t you be embarrassed if someone came to your office asking for a payment that you never sent?

Get Legal Advice from an Actual Lawyer

No payment. No response from the client. And, they won’t answer your phone calls. You’re starting to get really frustrated and angry. So, you start looking for advice online or from your friend who has a cousin who has a son who has a neighbor who dealt with the exact same thing. While that advice may put you on the right track, they’re not attorneys!I’m not a lawyer either, which is I am not offering you legal advice. I will, however, recommend that you meet with an actual attorney who will suggest which legal courses of action you can take against the client. Keep in mind though that you’re going to have to pay for a lawyer. So, that $250 invoice is probably not worth hiring an attorney to recover for you.

Take The Client to Court

Again, I’m not a lawyer. And I’m not saying that you should instantly take the client to court over an unpaid invoice. There may be no other action after you’ve tried to contact the client numerous times.According to Nolo, you can only take someone to small claims court if the amount owed is between $2,000 to $7,500 - depends on which state you reside in.

The advantages of taking a client to small claims court, according to Nolo again, is that it’s fast, inexpensive, and you may not even need an attorney.If the client owes you more than $7,500, you have to consider taking them to superior or municipal court for a trial. These cases should be pretty simple, so you could represent yourself. However, it’s not out of the ordinary for these cases to be settled before a trial even begins.

Hire a Collection Agency

You could also hire an agency to collect the debt for you. You can find a reputable collection agency like you could with other professionals, such as accountants or lawyers. Ask your network of they know of any collection agencies. If that doesn’t work, then check out member listings of the Commercial Collection Agency Association or Better Business Bureau (BBB) certified collection agencies.

I can’t stress this enough, before going into this direction, ask yourself if this is the right decision and if it’s worth it.Collection agencies will either purchase the debt at a low-cost or retain a good portion of the debt. For example, if you are owed $20,000 from a client, the agency may only pay you $5,000 to $10,000 for that debt. They can also retain a portion of the debt collected, such as 30%.

Editor's Note: Looking for collection services for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

 

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