What to Do When a Client Refuses Payment
For businesses that rely heavily on client satisfaction and timely payments, not getting paid on time can be incredibly frustrating. The dilemma is this: You are owed money for the service you provided, yet you can’t push the client too hard or you’ll lose their business forever.
So what do you do?
Here are a variety of ways to deal with this situation in an ethical, polite, and respectful manner:
1. Be persistent: Send friendly reminders
According to Small Business , it’s okay to send monthly bills that clearly show overdue payments. Calling the customer once a week might also work, but do be aware of your state’s collection laws and the fine line when persistent becomes too persistent.
Luckily, Xero has automated email reminders that can be sent out on a reoccurring basis to your clients when payment is due.
2. Accommodate unhappy customers
Occasionally, clients don’t pay because they’re dissatisfied with the service you provided. If your customer doesn’t feel like they’ve gotten their money’s worth, consider offering a deal or discount for future services. This way, you’ll be acknowledging their value as a customer and giving them incentive to partner with you again.
Also, don’t fall victim to pride. Sometimes—even if you’ve done nothing wrong—issues can be resolved with a simple apology to the client.
Ultimately, the right type of customer that appreciates your value is worth saving. If they are not paying and are not the right type of customer, may be time to cut ties.
3. State your intentions
Do you intend to report the debt to a credit bureau? Are you going to seek help from a lawyer or collection agency? Always state your intent to take legal action (if you intend to do so) rather than surprising your client out of nowhere.
4. Small claims court or civil court
Let’s say your client still refuses to pay after a significant amount of time (and effort on your part) has passed. One option available to you is the law.
Small claims court typically doesn’t require a lawyer and charges fairly low fees. However, be aware of how much money you’re attempting to bring in. Depending on the state or court, there are limits on the amount you can sue for.
Civil court is the step above small claims court. If your amount exceeds what’s allowable in small claims court, look into civil court. In this court, you’ll have a better chance of winning your claim if you have a lawyer to help you out. Due to the severity of civil court and the ensuing legality, clients may agree to pay simply to avoid the hassle and embarrassment.
5. Mediation or arbitration
If need be, hire a mediator to handle your dispute. Mediators deal with conflict resolution without placing blame or issuing judgment. They allow parties to discuss their opinions openly and encourage both to reach a new agreement. Mediators do require payment for their services, though, and you’ll have to convince your client to participate in mediation.
Arbitrators consider the dispute and decide how it should be resolved. If your contract requires arbitration, you aren’t allowed to take the client to court; instead, you must agree to whatever the arbitrator decides. The benefit to this method is that it is often faster than going to court (but arbitrators require payment, as well).
6. How do I prevent this from happening?
· Explicitly outline what is expected from your arrangement before starting the project.
· Clearly outline your policies for dealing with late payments. (It’ll save you the headache later.)
· Immediately contact the client the day that payment is due. (But be understanding and polite.)
o Ask whether they were satisfied with your work.
o State that you haven’t received payment and were wondering whether they’d encountered issues paying.
o Agree on a date for payment. If they’re unsure, give them a chance to deliberate and follow up with them the next day.
· Be aware that going to court is a viable option, but is a tedious process and should be approached carefully.
For more tips on how to handle customers who refuse to pay, check out “What To Do When A Client Refuses To Pay” (Forbes, 2015) and “5 Tips for Dealing With Clients Who Won’t Pay” (SitePoint, 2012).