5 Ways to Deal with Dead-Beat Clients

There are plenty of reasons why clients fail to pay. Some just procrastinate. Here are five tips for what to do when your invoices go ignored.

Has it ever taken you six months to collect a payment? Have you felt like your invoices and friendly reminders just get lost in the ether?

Fortunately, most clients you’ll encounter are professional and responsible payers, but unpaid invoices are always a risk for anyone who bills for their services. The problem is so pervasive that there’s a new campaign (The World’s Largest Invoice) for independent workers to share their deadbeat stories and unpaid invoices via hashtag #GetPaidNotPlayed. So far the total amount is closing in on $16M.

There are plenty of reasons why clients fail to pay. Some just procrastinate. Some don’t consider it a priority. Others don’t have the cash, and even end up filing for bankruptcy or closing their own business. But no matter the reason for missed due dates, it’s ultimately your responsibility to collect payments from your clients. It may be the least fun part of you job, but here are five tips for what to do when your invoices go ignored:

1. Be proactive

The most important step toward getting paid is to standardize your business practices by drawing up a contract for every client – no exceptions. The contract should include a statement of work, how much you should get paid, along with when you’ll get paid. While it’s possible to take legal action without a written contract, it’s going to be exponentially easier if you have everything in writing, signed by the client.

Define your payment terms upfront. Some businesses require a down payment (i.e. 25% or 50%) before the start of any project. Some specify that the full balance must be paid before the final goods/files/work are turned over to the client. Others require that payment must be received within 15 or 30 days after receiving the invoice.

While it’s common practice to charge clients a late penalty fee or interest on a past due bill, I’m not necessarily a fan of this tactic for most circumstances. First, unlike a credit card company, you probably work with the client on a face-to-face (or phone-to-phone basis). You’re developing a business relationship, and punishing your client isn’t conducive to building a good relationship. In addition, if someone isn’t in a hurry to pay your bill, they probably won’t be in a hurry to pay your late fee either. And a small penalty can just be written off as a cost of doing business and almost legitimizes the delay.

2. Invoice on time

A key to getting paid on time is getting your invoices out on time. When you’re slow to send out invoices, you are unintentionally setting the tone that timeframe and payment schedules don’t matter. Be sure to invoice promptly based on the terms set in the contract. Every invoice should include your payment terms in plain English (i.e. “please pay within 30 days”). Some payment terms work better than others, find out the best terms to get you paid faster.

3. Small delay? Be polite and patient

From time to time, even the most reliable of clients may be late to pay. A late payment shouldn’t be a major cause for concern, and at this point you’ll want to be thinking about nurturing the client relationship, rather than being the strict collections agent. In particular, when your client is a small business owner, they may not have a formal accounting procedure or accountant who’s responsible for their bills. Things can easily slip through the cracks, and it doesn’t mean anyone is trying to cheat you out of your hard-earned money.

As a first step, I always recommend sending the client a polite reminder via email—this is something you can automate to save you the trouble of staying on top of every late payer. There’s no point in sending a reminder every day; at the start, sending a notice once a week will suffice. A simple phone call can be effective if you think your email reminders are getting lost in the client’s inbox.

It’s also wise to know who’s actually responsible for paying you; if you are working with a larger client, there’s most likely a business manager or accounts payable department who issues the checks. Contact this person to inquire about the status of your payment.

4. Still no answer? It’s time to get firm

When your polite emails and friendly phone calls go unanswered for an extended period of time (let’s say 3-5 months, depending on the client and situation), your patience is probably wearing thin and it’s time for a new tactic. This is what I consider the middle point: the days of the casual email are over, but you’re not quite ready for legal action. Here are a few options to try:

  • Send a reminder of the late payment (along with a copy of the original invoice and possibly the signed contract) via certified mail. This will at least ensure that your client is receiving your notices. Make sure to send it to the person responsible for paying your bill; it’s ineffective to send a certified reminder to your contact when someone in the accounting department is the one cutting the checks.
  • If you have a good relationship with the client and know they’re tardy because they don’t have cash on hand right now, you may want to work out a payment plan or other deal. For example, break down the invoice into six monthly installments. In this case, you should add about 3% interest to the balance.
  • If you’re still doing work for the client, let them know you’re going to stop all projects until their balance (or portion of the balance) is paid. In most cases, this will be your most effective course of action. Of course, this tactic won’t work for a one-and-done type project.

4. When it’s time to get legal

Unfortunately, some clients just won’t take your invoice seriously. Month after month, your attempts go unanswered. This is when it’s time to involve the law. As a small business yourself, you most likely don’t have a hefty budget set aside for legal counsel, or a lot of extra time to spend in court rooms. Here’s where you will have to decide for yourself what’s worth the effort and when it’s time to just cut your losses and move on. Here’s some advice:

  • You can hire a lawyer to draft up an official letter full of threatening legalese. In many cases, this will be enough incentive for a client to pay up.
  • When you’re dealing with a small amount (i.e. a few thousand), you can take the matter to small claims court. Many people are able to handle this themselves, without having to pay a lawyer. You should make sure you have the contract, the invoice, and any emails that show the project was completed or work was done.
  • For larger amounts, you will need to go to superior court. You can still file the claim and represent yourself, but you should at least speak with a lawyer before doing so. Hopefully, once the client receives a notice to appear in court, they’ll pay right away.
  • If your client has declared bankruptcy, then you will definitely need to file a claim in court and have the judge decide which claims will be paid.

5. Work with quality clients

If you find yourself having to fight to get paid invoice after invoice, it might be time to walk away from this client. As a professional, you deserve to work with other professionals. Sometimes, dropping a client can be the best way to grow your business. This way you can focus on what you do best, instead of dealing with certified letters and threats of lawsuits.

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about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.