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How To Collect Money From Clients Who Won't Pay

How To Collect Money From Clients Who Won't Pay

Unfortunately, collecting invoices from outstanding client payments is relatively common for independent contractors and small businesses. What's worse, having to confront a customer who hasn't paid at all can be downright exhausting and nerve-wracking when trying to remain polite. Conflict is rarely an enjoyable experience, and late payment confrontations can range from a simple misunderstanding to outright hostility if not handled appropriately. Of course, the principle of this issue goes without saying - no business owner wants to chase down clients for past due payments. However, there are ways to make it easier, and today we're going to analyze a few methods that have shown proven results for positive outcomes.

Send a Series of Reminder Emails

Sometimes, a simple reminder is all that's needed for customers to pay their dues. In the event someone is particularly forgetful, you may need to send a series of email reminders. Overdue payments or unpaid invoices should be included in each email, reminding the client how much they owe and the due date, along with any other relevant payment terms.

It's tedious, yes, but providing all relevant information is a protective measure for small-business owners. Be sure to establish a maximum number of follow-up attempts before moving on to more harsh measures. Remember, an email doesn't have to be a demand letter, but be sure to be direct and convey the necessary information, as it's your business on the line. It might also be a good idea to have a payment reminder email template on standby just in case.

Call the Client Directly

Never underestimate the power of a phone call. In an age of anonymity on the internet, having a person-to-person interaction can effectively remind someone they're dealing with an actual person. Courtesy and a friendly reminder of payment expectations, including a payment timeline, can convey a great deal of information, including your professionalism and willingness to manage disputes maturely. Remind the client of different payment methods available to them, like credit cards, check, or Paypal, and see if you can solve the issue by streamlining potential holdups in the payment process. As a small business owner, the last thing you need is cash flow issues, so if something as simple as a phone call can avoid financial woes, consider this approach.

Go Overhead to the Billing or Finance Team

When dealing with companies of a specific size, a client's payment may need to be discussed with a separate department. Another employee might help you collect any overdue invoices by going directly to the governing branch of the business in question. People are busy. When settling an outstanding bill, exhaust all your options. Don't be afraid of going over your point of contact's head if they are repeatedly ignoring your communications.

Stop Future Work and Deny Requests

Another way to deal with a late-payer may be to cease delivery of goods and services. This tactic may seem abrupt, but it's also an effective way to convey that your business is valuable and demands payment. Your livelihood depends on your ability to collect fees, which is simply economics. If the client respects you and your business, a pause in service will get their attention, hopefully resolving the issue before anything more drastic is needed.

Before Escalation, Weigh Reward vs. Effort and Time

What is your time worth to you? When considering how to proceed regarding late payments, you'll need to weigh this question. Time spent chasing after overdue payments is time you could be spending expanding or improving your business, and the reality is that every invoice may not be worth the effort. If you wish to escalate responses, here are a few ways to improve your chances of getting paid what you're owed.

Hire a Collections Agency

Collections agencies specialize in all manner of debt collection, employing numerous methods to get the job done. They also manage several debt categories, including credit cards, medical loans, student loans, and even unpaid utility and cell phone bills. They can even work with the client by negotiating settlements. Note: the agency buys the debt from you, meaning you'll have to write off the debt entirely, and you will negatively affect the client's credit score.

Hiring an attorney is a formidable approach that you should weigh carefully before moving forward. If the use of a lawyer is necessary, their ability to professionally navigate the trickier aspects of overdue payments can save your business much money on substantial orders. Again, be sure to evaluate the cost of an attorney and the time investment you'll need to undertake a potential lawsuit and make sure you won't end up with a loss.

File a Claim in Small Claims Court

Also known as Conciliation Court or The People's Court, filing in small claims court will involve numerous aspects of the Justice System to ensure the appropriate measures are taken. Once you've taken care of your paperwork and filed your claim, a summons will be dispatched to the owner of the outstanding payments.

Then once they've been served, they'll have the opportunity to settle with you or appear with you before a judge to resolve the dispute. Be aware that this process can be lengthy and time-consuming and require you to present evidence and witnesses on your behalf.

Take Client to Superior Court

If full superior court measures are needed, you'll also have to hire an attorney. Superior court will be required if a prosecutor and a defendant can't reach an agreement, and it most often involves a jury to arbitrate a final decision. Superior court may also be required, depending on the sum of money owed. The laws will differ, depending on your state. This legal route can be expensive and even more time-consuming than small claims court, and it isn't subject to simple convenience. Prepare accordingly and make sure it is worth the time and effort of your business.

Try Arbitration

Involving a third party to settle the dispute may be a better solution than the lengthy processes of small claims and superior court and help avoid steep attorney fees. Cases will be presented outside of court to an arbitrator who will review the evidence presented by both parties before making a decision. Bear in mind that arbitration clauses can be both mandatory or voluntary, and arbitration may or may not be binding, so be sure to establish both of these aspects before proceeding.

Strategies for the Future

Hopefully, as a small business owner, you can avoid such inconvenient and costly measures through simple preparation. There are many strategies out there that can safeguard your income, all easily applied with a little precautionary thinking. Consider a few of these tips for your small business.

Add late fees to your clause

Incentivize clients to avoid late payments altogether with something to deter them from being negligent. Utilizing a late fee encourages not only timely payments but also legitimizes the value of your service. Once again, know your worth and act accordingly!

Charge retainer hours

If more and more of your time is being used up, remember that time is money. Extra effort and hours spent working on a single order or sale is time you could be spending generating more income, so this is a great way to tackle both issues at once. Establish an hourly retainer rate for any extra time spent, thereby encouraging clients not to abuse your valuable time.

Charge a deposit

For project-based fees, charging an initial deposit may be an excellent way to ensure you are never left utterly bereft of some cash. Many vendors charge

Summary

In conclusion, collecting outstanding debts is never fun, but that doesn't mean you don't have options. Everything from a phone call or snail mail is just as valid as something more severe like small claims court. Hopefully, by implementing some of the preventive methods listed above, you can avoid these scenarios altogether. After all, your business should be focused on doing what it does best, and that's providing valuable services. If you need to pursue collecting payment, the faster you can deal with overdue payments and get back to your business, the better.

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