As a small business, whether a client doesn’t pay because they don’t have the money or don’t like your work, the effect is the same for you. You’ve been stiffed and left wondering what your next steps are. It is a crappy but true fact that most companies deal with non-paying clients sometimes. However, there are solutions to prevent the likelihood of nonpayment and to obtain the money owed when a client doesn’t pay on time. Consider these steps to safeguard the time and money you’ve invested in your small business. Learn what to do when a client won’t pay.

An Ounce Prevention is a Pound of Cure

Screen potential customers in advance. If a transaction requires the customer to make a large payment, it is worthwhile to do a little checking before entering into a contract. A simple internet search may reveal court records, complaints with the Better Business Bureau, or other warning signs. Always check out their social media at the very least if you have gut-level concerns about someone.

Use Well-Written Legal Contracts

Always use a written contract. As a new business, you may feel tempted to accept a less structured transaction out of a desire to build up a customer base. However, a written contract is advantageous for both parties because it guarantees their rights and obligations. The payment terms, which may vary based on the industry and whether the contract is for goods or services, should be clearly spelled out. 

The inclusion of a late payment fee may deter customers from making late payments or failing to make payments at all. Specify your refund policy to avoid misunderstandings.

Require a Deposit

Make a prepayment or a retainer a requirement for more extensive projects if not for all projects. A retainer is essential if your business must incur substantial expenses (for example, purchases of materials or equipment) to provide the services or goods to the customer.

According to Freshbooks, it’s crucial to “Increase the frequency of payment based on milestones rather than dates. This way you’re able to complete a comfortable amount of work and ensure you’re paid before you proceed.”

If you make websites for a living, consider charging each time a page is published or for each time the client has asked for new changes. You don’t want to let charges accrue and pile up to a significant amount for a client who has proven less than trustworthy.

Problem Clients

No one wants a problem client, but all small businesses must learn to handle them. Make sure to promptly send non-payment notices when you don’t receive payment immediately. Sending invoices is a proactive step you can take that especially helps forgetful or stressed clients to remember their obligations.

Many accounting software platforms online have built-in overdue invoice templates you can use. Wave is one example that allows you to send professional-looking invoices to a customer. Wave lets you keep track of the number of days outstanding for a bill so that you don’t have to check your calendar continually. 

Continue to reissue invoices marked “past due” until the customer pays the amount owed. For a customer who has been problematic in the past, consider requiring full payment before delivering the goods or services. Stop doing business with customers who are repeat offenders.

Try To Work It Out

Try to work with the customer to resolve the situation. Sometimes a phone call to reestablish your relationship and make a plea can place your bill at the top of a large pile of red slips. If the customer has hit a rough patch, try to establish a payment plan to pay the balance over an established period. If you talk to the customer on the phone, follow up with an email memorializing any verbal agreement you have reached regarding payment.

Make sure to document all communications and keep copies of the ones that are in writing. Retain all records regarding your work and any payments made.

Have legal contacts and a plan in place in the event a client disappears. It’s easier to deal with it if you take care of all the research before it happens.

Getting Serious

If the non-paying customer is another business, contact the Better Business Bureau to file a report. Other companies do not want a bad rating that will hinder their future business relationships with others. If the non-paying customer has filed for bankruptcy, you need to file a proof of claim within 70 days. Unfortunately, once a bankruptcy proceeding has begun, you must cease all efforts at collection.

Take several steps to lessen the likelihood of nonpayment and obtain the amount owed once a customer has failed to make a timely payment. With a multi-pronged approach, you can increase your chances for compensation.

We Can Help

If your other efforts have failed, turn to an experienced business law attorney. A demand letter from our experienced business law attorneys will carry extra weight and spur a delinquent customer to take action. If not, you may need to file a lawsuit to recover damages for your business.

If you need assistance drafting a contract containing terms that will best protect your business against the risk of nonpayment or if you need to take action against a non-paying customer, we are here for you. Contact our office today to find out how we can help.

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