There is nothing better than having clients who pay their invoices on time, right? The reality is, some of them will ghost you, and you will have no idea what to do. This can happen to anyone, regardless of how seasoned or inexperienced you are.
We hope you aren't one of those business owners who learned to collect money the hard way. But if that's the case, you get to learn from your mistakes and be prepared when a similar situation happens again. In the last couple of months, we were hit by the economic slowdown, and people are facing a shortage of cash, so it's better to be safe than sorry.
That's why we came up with a short guide to show you what to do when a client doesn't pay.
How to follow up on past due invoices
To speed up the payment process, you'll want to discuss the invoice issue right from the start before rolling up your sleeves. Send a reminder letter to your client. If it's too late for that, don't beat yourself up because there is always the next time.
Firstly, think about who should get the invoice. For example, sometimes it's the client, other times it's the accounting department or both.
The next thing to consider is the payment options, like bank transfer, check, or credit card, to make sure there is no holdup. Did you know that clients are more likely to pay your invoice on time when everything is crystal clear? That is why you want to ensure that all the necessary pieces of information are included.
Last but not least, having that conversation about past due payments is a huge source of anxiety. But you could use accounting software which will help you track late payments easier.
Prevent overdue payments from clients
Review new customers. It is essential to evaluate the creditworthiness of new clients and set up an appropriate limit for them. In that case, you will minimize the risk of late payments and debt. We suggest that in these situations, you start with the lower limit.
Send invoices right away. Be aware that customers can't pay you if they haven't received their invoice, so send invoices promptly. If you have an online invoicing process, this will speed up the entire procedure, since paper ones take a long time and can get lost in the mail.
Create transparent invoices. Payments can be quicker if there is no delay, ensuring that all the information you entered on the invoice is correct.
Offer discounts on early payments. Having incentives will make customemers pay their bills on time. You can reward them with a discount for every early payment.
Collecting overdue payments
If you don't know what to do if someone doesn't pay you for a job, we have a couple of suggestions to help you bypass this issue.
Don't get upset. It's crucial to be committed to being paid because some customers will always find some excuse. Try to be friendly and yet professional. If you don't take a firm stand, clients will walk all over you. If you aren't a good delegate and negotiator in your company, then who is?
Stay focused on payments. Many business owners let late-paying customers slide because they avoid confrontation or are too busy to track everything. Use accounting software to chase late payments.
Send reminder letters. Letters might be a great way to remind your customers about late payments. You should create a standard form letter you can apply to various situations. Make sure to end the letter by asking clients to contact you to discuss a missed payment.
Take legal actions. If there is no other way or if the previous steps didn't give you desired results, it's time to take legal action. Contact your lawyers and have them write a demand letter that threatens the clients with legal actions if they don't settle the debt.
Invoicing and taking payment from customers. If you are selling a product or a service, you need to issue an invoice by law. You can either request the payment right away or allow them to pay their invoice at a later date. However, there are a couple of technicalities you must include. For instance, every invoice needs to have contact information, invoice number, date of purchase, amount or type of product, total due, taxes, payment due date, and information about fees on late payments.
What To Do When Client Refuses To Pay?
Make a contract. Each client should sign a contract before you start a project. The contract needs to include details about the project, how much money the client will pay you, and when you will expect payment.
Make sure to include fees for late payments. A contract is one of the effective ways to deal with a client refusing to pay the invoice.
Get payments upfront. If you own a small business, you are expected to receive a payment percentage before beginning a project. On the other hand, some may receive payment when each stage of the project is completed. This way, if your client doesn't pay on time, you can refuse to finish the project.
Go for different contact methods. When your contact person doesn't respond to your calls or messages, try reaching out to someone else. Get an email address or a phone number from their website, or if the client lives in the same city as you, stop by their office.
If a customer doesn't pay for services, there are a couple of ways that can help you navigate this whole situation. Firstly, don't let debt build up. This will keep your customers from paying regularly, and no one likes a big bill and a customer who avoids their obligations.
The best way to get paid on time is to take matters to the top, which means talking to the business owner directly. Sometimes owners aren't aware that their accounting department isn't keeping track of payments.
Don't fall for excuses because many accounting departments will say, "we haven't seen that invoice". It's always a great idea to check with the client whether they have received an invoice or not. Whatever method you choose, make sure to maintain a friendly relationship so your customer will feel more valued.
Suing A Client For Non-Payment
If you find yourself in the unfortunate but quite common situation in which a customer hasn't paid for the provided services, you have the right to seek legal help. However, before taking any legal actions, there are a couple of steps you should consider.
Foremost, make a final demand for payment. You will accomplish this by sending a letter to the customer, demanding that payment be made. You would be surprised how successful the final letter can be. The next step would be to collect your debt through a small claims court. This is also the simplest and quickest way to resolve disputes.