They either can’t afford to pay or refuse to. No freelancer or small business owner likes to deal with a client who won’t pay up.
Non-payment can leave you financially strapped, damage your professional reputation, and eat up valuable time you could be using to get more clients.
You must act immediately when a client doesn’t pay you. Although you may be tempted to wait and relax for the money to roll in or for the client to come crawling back to you with a check in hand, that’s not the best course of action. It is essential to know that there are many ways to deal with these invoices.
You can make arrangements to get the debt paid in full or make arrangements to have late payments billed off. You should also be aware of legal actions you might need to take if you do not receive payment on an invoice. One way to work through how to deal with unpaid invoices is to make a fresh set of invoices for each customer. If you have a billing department, you can use them to make new invoices for each customer.
Recovering unpaid invoices is an essential part of financial management, regardless of the source. In some cases, the cost of recovering unpaid invoices can be relatively high, so it is always a good idea to make sure you are prepared to deal with them when it comes to bill collection.
Here are some tips for addressing the problem of a nonpaying client.
Consider invoice financing
Invoice financing can be a quick way of raising quick money by selling your invoices to a third party.
This method has some benefits over other forms of borrowing, like a loan or credit cards, and for that reason, many small businesses use it to help cover cash flow gaps.
You do this because you lack the financing to keep your business afloat, and you want to get your invoices paid faster so that you can get your cash sooner.
The advantages of invoice financing are similar to those of other forms of funding. Most importantly, invoice financing can give you access to cash when you need it, and you don’t have to pay interest.
Depending on the terms of the contract, you may not have to pay interest at all. You may also avoid paying fees that other financiers, such as banks, would charge.
Keep your invoices organised
Before contacting your client, you should create a list of all unpaid invoices. This shows you’re serious when you speak with them and will make you sound far more professional.
Keeping track of your money is essential when you’re running a business. But with the growing heap of paper receipts and the subsequent clutter on your desk, getting your finances in order can seem like a giant, time-consuming task.
Fortunately, there are a few simple ways to organize those invoices so you can find the information you need when you need it.
Sorting them by date will make them easier to sort. If the receipts are in a stack, you may want to make a copy of the whole stack before you sort it, so you have a backup. The easiest way to do this is to have all of your invoices in a spreadsheet that you can easily adjust and filter.
This is generally good practice, and most debt management software like Payt and others will have a full suite of programs that allows you to stay on top of invoicing.
Follow up directly with your customers
Sometimes the most straightforward solutions are the best. It would help if you began by merely following up with customers as this is something that requires little effort.
For each client that you have that is not paying on time, send them a reminder. If you are in the market for this type of service, you may want to look into getting a software program that will help you manage your clients and their payments. You can also use software to set up reminders for payments, saving you time and hassle.
Try reasoning with them
If you’ve been working with a client for a while, you’ll have a much better chance of getting paid when you invoice them, and they agree you’ve done the work you said you would.
However, there are times when this doesn’t happen, and you’re left waiting for the money you’ve earned. The first thing you should do is make sure you’ve done everything you can to try and get paid.
Review the contract and see if there are any loopholes they might exploit or if dates have been mixed up. Check that you’ve sent the invoice, the client has acknowledged it and accepted the terms, and that they’ve made a down payment to confirm their order.
Then, if you haven’t heard from them, send a friendly follow-up email asking if they’ve received the invoice and whether there’s anything you can do to make payment easier for them.
Even if it means taking on some extra work, you would instead get what you are owed, even if it means they pay the invoice amount. It can be tough to reason with them, especially if they claim to be strapped for cash. But if you handle this tricky situation correctly, you can resolve it without making things worse.
Try to see things from their perspective and come up with solutions that are manageable for them. This could mean offering up a payment plan unique to their situation. This may lead to more work in the short term, but by keeping things calm and civil, you will enhance your reputation and even gain new customers.
See what you can do to get them to pay
If the friendly approach does not work, but you want to avoid legal action, ask yourself if there is anything you can do that might force them to act.
For example, if the job required regular payments for a service, you could inform them that your service will halt if payment is not received by a specific date. If this is important to them, then they may reluctantly agree to pay.
This will only work if you have some payment system in place, such as monthly payments or half up front and the rest upon completion of work arrangement. If this fails, you might need to consider a more serious option.
Taking legal action
If the client or customer still refuses to pay, the next step is to send a letter threatening legal action.
In your letter, you should clearly state that you will take legal action unless payment is received within a specified period. In most cases, you should allow the client or customer at least ten days from the date the letter is sent to respond. Consider contacting a lawyer to get advice on the amount of time to allow for payment.
This should be a last resort since it can be costly and time-consuming. Even if you win, it is often a pyrrhic victory that can end up costing your business more overall. Before going down this route, it is prudent to seek advice from your lawyer to see what options you have. They can sometimes contact your client on your behalf for a small fee.
The sight of a letter headed by a law firm can sometimes be enough to compel payment.
Unpaid invoices cost businesses a great deal of money and can severely impact cash flow. Reducing cash flow can hurt your company in more ways than you think, as cash flow is the lifeblood of any business. When you approach this with your client, you should start softly, but don’t be afraid to step up your efforts if necessary.