Last Updated on August 6, 2022
“Hope for the best but prepare for the worse,” is a wise maxim to follow when it comes to receiving payment for your labour. You can get the money you are owed by your clients by putting collection processes in place before you start working and using them when it is time to collect.
If your company uses an invoicing system, you may be familiar with late and even nonpayment. Customers may not pay invoices on time (or at all) for a variety of reasons, including missing bills and unforeseen additional costs that customers later realise they cannot afford. Many small business owners find it difficult to request past-due payments politely. Nevertheless, an unpaid invoice affects your firm regardless of the situation.
To maintain a healthy cash flow, you must take action. The key is to be open and honest with your clients and prepare some backup plans.
How to collect overdue payments
Sometimes, no matter what you do to avoid the problem, you still end up with nothing. After taking all the necessary steps, if your clients still don’t pay the invoice, you must move quickly. Here is how to handle the circumstance.
Weigh your options
Consider whether going after the clients is truly worthwhile. It could be preferable to let the cash go and write off the clients for future business if it just represented a small portion of your annual income. You can end up investing more time and resources than the bill is worth.
In the best-case scenario, you will still be responsible for paying your own legal expenses to collect if you have a case that can be won and the defendant has the means to pay and doesn’t file for bankruptcy. And depending on how complicated the case is, those can number in the tens or even hundreds of thousands.
Follow up
If the client doesn’t pay the invoice by the specified date, don’t be afraid to send them an email. There’s always a chance that they misplaced the invoice or that it never got to them. Perhaps the client had a family emergency or was on vacation. Because the client didn’t pay on time, you shouldn’t presume that they are a deadbeat right away.
Send the invoice again as a reminder if you aren’t getting paid or if you haven’t heard back about it. The automated invoice serves as a reminder of the due balance, without giving the impression that you are personally pressuring the customer.
Remind them in a polite but firm email that the invoice is overdue and that you would like to address the situation as soon as possible. Additionally, find out if they have any complaints about the goods or services you gave them, or if they require help making a payment.
Contact via social media
If you repeatedly sent emails, bills, and reminders, you might need to use another channel of contact to provide yourself with some degree of comfort.
Most businesses have a presence online, whether it is on Facebook, Twitter, LinkedIn, or another platform. Use these channels to get in touch with them and ask them politely to get back to you. Although getting ghosted is never a pleasant experience, professionalism should always be maintained, especially if you are also representing your company.
Send a debt collection letter
A reminder is less formal than a letter of collection. It contains the date that payment was due, offers a window of time for sending payment, which is normally two weeks, lists the payment methods you accept, and makes a promise about what you’ll do if you don’t get paid.
You can make a general suggestion (such as “to prevent further action”) or a more direct declaration that you’ll hire a collection agency or file a lawsuit as your next course of action. Your decision will be influenced by the amount owed, the amount of time that has passed, and maybe your desire to keep this client for future business transactions.
Reach out legally
You should have a lawyer create a letter if your clients are still unaccounted for at this stage. The threat of legal action may occasionally prompt the customer to get in touch with you and, at the absolute least, make payment arrangements. You can either ask on freelance forums or pay an inexpensive cost for an attorney letter. If you find yourself in a tight spot, you could also want to contact legal aid attorneys.
Consider using small claims court as a last option. It’s crucial to balance the amount the client owes you against the costs of following up because these choices are expensive. It could be time to cut your losses and move on if the statistics simply don’t add up.
Send a final demand letter
Send a final demand letter if the client hasn’t paid you before bringing legal action. The final demand is very similar to the debt collection letter previously mentioned, but it typically states more explicitly that you intend to file a lawsuit if the client doesn’t pay. A final demand letter may also be written by an attorney on retainer.
The letter’s content should be the same regardless of who sends it, but when a lawyer makes a demand, it typically garners more attention and weight. There is no obligation to retain the attorney if you subsequently decide to file a lawsuit unless you and the attorney agree differently. The cost of hiring an attorney to draught a letter is significantly lower than the cost of hiring the attorney to represent you in court.
Disable or withhold the final product
It is obvious that you cannot stop working on a project that has already been completed. But until you get paid, you might be able to keep it away from your client. Keep your access to client projects restricted until all outstanding debts have been settled.
If the customer then tries to avoid paying you for your services, you may prevent them from using the project. It could seem insignificant, but it is completely reasonable because your contract specifies that you would provide the finished product in exchange for a specific sum of money. If you don’t get paid, the client shouldn’t get their website or app.
Conclusion
It’s crucial to keep in mind that each circumstance is distinct on its own and must be carefully examined before any action is done when dealing with clients who won’t pay. For what it’s worth, you can’t approach devoted customers the same way you do new ones.
You don’t want to sever a strong working relationship over a single late payment. Always attempt to resolve a situation with a polite chat when a client refuses to pay. However, if things spiral out of control, keep in mind that the law is usually on your side in such circumstances.
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