Learning how to collect money from clients who won’t pay is crucial when running a business. You need to strike a delicate balance between not annoying or angering your clients to collecting payments.
Here are some steps you can take if you’re having trouble collecting overdue bills. While there is no one best way to deal with late-paying clients, you could utilize these ideas to help you collect payments.
How to Collect Money From Clients Who Won’t Pay?
You might find yourself asking from time to time, “What can I do for collecting payments from customers”
There is no one easy answer to that question, but there are different things you can do when dealing with clients who refuse to pay.
These steps could all be the best way to collect money from clients.
Send a polite reminder email
If a customer won’t pay for services you have rendered, a good first step is to send them polite email reminders.
You should take a light tone in this email, as the customer may have just forgotten to make a payment.
It’s always advisable to use polite ways to ask for payment first, before taking it to the next level.
Follow up with a phone call
Not every client will respond well to emails.
With how many emails people today receive daily, they may have just missed your note, or it may have gone to their spam folder accidentally.
If you haven’t heard back from your client after you email them, you should move on to giving them a call.
The phone call may be more personal, which your client may be more receptive to.
Go directly to the payment source
If you still don’t make any headway after calling your client multiple times, consider visiting them in person if you’re near them. This step could serve two purposes.
- First and foremost, it could result in you collecting the money you’re due.
- Second, it could also help you build a better rapport with your customer.
Late fees and early payment discounts are also effective at motivating clients to pay invoices on time.
Send a final notice letter
If none of those options have worked, and your customer won’t pay an invoice, it’s time to step up your collection efforts.
It’s time to send a formal letter to your clients, notifying them that this is their last chance to make a payment on the money they owe.
Advise them that they need to contact you to make payment ASAP, or they need to call you to make payment arrangements at the very least.
You also should advise them that if they do not respond within two weeks of the notice, you will have to take your collection efforts even further.
Cut off future work
You should definitely cut off any future work you had for this client if you haven’t done this already.
If they’ve ordered products from you, don’t deliver them until they get current with their bill—or make arrangements to do so.
If you provide services to them, cut off their access.
You should, of course, communicate that you’re going to do this in your final notice letter.
This step will help protect you from losing even more money than you’ve lost.
Go to Arbitration
If your client is disputing all or part of your invoice but is amenable to working something out with you, you could opt to go to arbitration.
This would involve hiring an independent arbiter to hear both sides of the case, review any documentation, and then make a final recommendation for how you both could proceed.
The recommendations from the arbitration process wouldn’t be non-binding, but they could result in you collecting money from clients who refuse to pay.
Contact a collections agency
If arbitration doesn’t result in anything positive—or if you don’t go that route—you could turn your client over to a collections agency for collecting payments from clients.
This company would purchase the outstanding invoices from you for a very low amount, and they’d be responsible for collecting the money for you.
Or, they could take a percentage of what they collect, on top of a flat fee you pay them.
While this won’t bring you the total amount of your invoice, it could be an effective way of collecting your money.
If a collection agency contacts you, they will likely send you a letter or give you a call. The collection agency will try to collect the debt from you directly.
If you are unable to pay the debt, they may take legal action against you.
The state and federal laws regulate collection agencies.
How to hire collection agencies?
There are a few things to consider when hiring collection agencies.
- First, you’ll want to make sure the agency is reputable and has a good track record. You can ask for references from other businesses that have used the agency, and check online reviews.
- Second, you’ll want to ensure that the agency has its license and bond. This will protect you in case of any problems with the collections process.
- Third, you’ll want to make sure the agency has experience collecting from businesses in your industry. This will ensure they know how to properly collect from your customers.
- Fourth, you’ll want to get quotes from multiple agencies so you can compare prices and services
File a claim in small claims court
If you want to take legal action, you might have to start in small claims court.
Depending on how much money the client owes you, your state may require you to go through the process of small claims court with a demand letter.
This process is an official legal action in which you’ll have a judge decide the outcome of the situation. The judge will enter their judgment, and your client will have to abide by it if the judge finds it in your favor.
Sue the client
The final and most serious step is filing an official lawsuit.
Depending on how much the client owes you, you can do this based on your location. This can be a costly and lengthy process, but it might be your only option if none of the above steps have worked.
When To Take Legal Action for Nonpayment?
If you don’t know how to collect money from clients who won’t pay, you may have given up on trying to be nice.
Following informal and then formal notices that you want to collect a payment, you may need to pursue legal action if a customer refuses to pay what they owe.
- If a customer won’t pay an invoice even after you’ve done all of that, then it’s time to consider your legal options.
- Keep in mind that if you decide to pursue legal action, you should prepare not to do business with this client again.
- Taking legal actions against a customer will likely sour them on your business in the future.
If you’re OK with that happening and don’t want to do business with them in the future, then it might be a good idea to pursue legal action.
Also, you have to consider that the legal action for non-payment of dues will likely cost you some money.
While you might be able to reclaim some of your legal costs should you win the case, there’s always the chance you lose out on it, too.
So, make sure that the amount owed is enough to justify this step in how to collect money from clients who won’t pay.
How to Ask For Payment Professionally
- You should always remain professional when asking someone for payment, even if they are very far past their due date.
- Start by checking with the client to see if they’ve received your invoice. This is a nice passive way to start asking for money.
- It’s possible that the client either didn’t receive the invoice or misplaced it with the mounds of paperwork or emails they get regularly.
- Even if they did receive it, this would remind them that they need to pay it.
- How they respond should dictate how you respond. If they say they have it, politely request that they pay it as soon as possible.
- If they haven’t received it, send them a new invoice and follow up with them in about a week.
- If you’re a small business, you can keep things very personal throughout much of the early collection process.
- You can email your clients, call them, and even meet with them over the outstanding money they owe you.
- If you run a large business, this might be more challenging—especially if your client who owes you money runs a large company, too.
- In this case, you may need to have a more formal approach. This could include formal letters, final notifications, and more.
- You should always remain professional, no matter what size of business you run, even if your client continues to duck you.
Avoiding the Nonpayment in Your Small Business
Of course, we’re dealing with the question of “what can I do if a customer doesn’t pay?”. The ideal situation, though, is that you never get to this point in the first place.
Instead of worrying about how to collect money from non-paying clients, try putting some processes in place to avoid this situation altogether.
- One of the best things you can do is sign contracts with all of your clients.
- These contracts will plainly lay out all terms of the arrangement in writing. It gets easier to create a payment plan and include it in the document.
- This will protect you if there’s ever a disagreement over whether you delivered the product/service or whether the customer owes you the money.
- Next, you could require that your customers pay you upfront for your products or services.
- You might not be able to get full payment in advance, but even a deposit equal to 50% of the cost would be a good idea.
You could also require payment when you deliver your products or services.
This would eliminate the possibility of your customers getting a product or service from you without paying.
Remember, a collection agency can help you with collecting payments from clients or guide you in ways to collect money.
A great idea for customers who have ongoing services from you is to set up recurring payments.
This would involve collecting a credit card from them to keep on file, which you would then charge at a preset date every month.
This type of billing is becoming commonplace today, so it won’t be outlandish for you to set this up.
Another thing you should do is watch for any warnings signs that a customer may not pay.
For example, if they are late on invoice payments, get on them early before it becomes an issue. And cut off their services or products early before the issue becomes very costly for you.
Defining payment terms will help you too to avoid late payments and advise your clients of your payment process for future invoices.
Do’s and Don’ts When Collecting Late Payment Clients
While each collection case will be unique in some ways, you should follow some general rules when trying to collect money.
These rules apply whether you have a small business or a large business, and no matter what industry your business is in.
Here are a few of the general do’s and don’ts when trying to collect money.
- Be polite at all times
- Try to understand their situation if they’re having trouble paying
- Have all of their information in front of you when you contact them
- Offer them multiple options to pay
- Have all in your company’s billing department up-to-date on the payment system you use.
- Cut them off from future work if it goes too long
- Consider further legal action if you still can’t collect
- Consider hiring a collection agency if it goes too far
- Get upset if your client doesn’t pay or can’t pay right then
- Be unprepared for the call/point of contact
- Wait too long to start trying to collect
- Threaten a client at any time
- Treat your customers poorly
- Do it on your own if your customer still refuses to pay
Conclusion, What To Do When a Customer Won’t Pay For Services or Products
One of the biggest challenges for small businesses is to figure out how to collect money from clients who won’t pay.
This is not an easy situation to deal with. It could cause extreme headaches and even make or break your business.
That’s because sales are only good if you can collect the owed money.
If you’re dealing with clients who won’t pay, you may need a small loan to pay your own bills and avoid cash flow issues.
In these times, a microloan from Camino Financial could be a great way to weather your mini-storm.
At Camino Financial, we work hard every day to live up to our motto of “No Business Left Behind.”
We do that by providing great loan products to a wide variety of customers and offering educational resources such as this.Apply for a microloan today
What can I do if a customer doesn’t pay?
If you have a client who doesn’t pay, you should start reaching out to them in polite ways to collect the money from them.
Keep in mind that your clients may have just forgotten to make a payment.
Then, escalate the situation if need be.
How to ensure payment from clients?
There are many steps small businesses can take to ensure payment from clients. This includes signing contracts, collecting money upfront, and setting up recurring payment methods.
How do collect payments from customers?
One of the best ways, when a customer won’t pay an invoice, is to offer various payment methods that you accept. This could include cash, checks, and multiple credit card companies. We recommend using a format to collect money from clients to manage well your overdue payments.
You could even offer discounts to customers who pay early.
How to politely remind someone to pay you?
Email is a great passive way to remind someone that they should pay you.
You can send a nice little note reminding them of an upcoming due date on an invoice or if they’re behind on an invoice.
Customers will often appreciate it when you remind them this way, rather than harass them with phone calls that might seem aggressive.