Nothing is more frustrating than working diligently on a project and then sending your client an invoice only to wait and wait and wait. The fact is that getting paid is difficult sometimes. Some clients feel no sense of urgency to pay, and others think they can get away with not paying you at all. It is important to follow up because customers will have all kinds of excuses. These people will take advantage of you because they believe you will not know how to collect what you are owed. There are many legal methods available, so you don’t have to accept this conduct from deadbeat clients. Follow these steps to make collections easier and faster.
The first step to collecting on an outstanding invoice is sending a statement or collection letter requesting payment of the invoice. Some people routinely wait 60 or 90 days to pay bills because of their own cash flow problems. If you have a client who does this, you may get a better response by sending a collection letter (download a sample payment demand letter template).
Call the Client
If you don’t get a response by sending a collection letter, the next step is to make it personal. People will find it more challenging to withhold payment from someone they know. Call the client. Explain that you have provided the services, and you can’t afford to carry this unpaid receivable any longer because cash flow is essential to your business. The next step would be to make an appointment to visit the person responsible for paying you.
Persistence is Key
When it comes to getting paid, the squeaky wheel usually gets paid first. You worked hard, so you should not be afraid to ask for your payment. However, don’t make threats or lose your temper. Harassing the client can get you into legal trouble. The goal is to figure out what the problem is and how you can get paid. You could offer a payment plan with the client if they are unable to make a lump sum. You could also offer to work with them to accept a partial payment, which is better than nothing and avoids the expenses of filing a lawsuit.
Take Legal Action
If you know that the client has the money to pay you or will in the future, there are several legal means to collect a debt. You will first want to speak to an attorney to determine if it is worth seeking legal action. You will need to weigh the possible outcome of the amount that you are likely to recover from the client compared to what the costs will be to hire an attorney. It may not be worth it, especially if the attorney fees will exceed the amount owed.
If a collection letter does not work, you may consider hiring an attorney to draft a demand letter to send to the client. A demand letter threatens the client with legal action if the debt isn’t paid. Customers who don’t respond to a call or letter from you may feel threatened by a demand letter from an attorney.
If the client does not respond to a demand letter, and the debt is not too large, the next step is to consider suing the client in Small Claims Court. A lawyer is not required to file a case in small claims court. It is inexpensive and relatively quick. The limits for small claims court depends on the state where you live. The limit is generally between $2000 and $10,000. If your client doesn’t show up to court, you will win by default.
If your client owes substantially more than the small claims court limit for your state, you may decide to sue them in state court. Many cases never go to trial because the defendant agrees to settle or doesn’t show up in court, so they grant a default judgment for the amount owed. You may want to consider consulting a lawyer to give you advice if you go this route.
Seek Alternative Dispute Resolution
If your client agreement contains an arbitration clause for dispute resolution, you will be unable to sue your client in small claims or state court. This provision is referred to as “arbitration” or “dispute resolution.” This requires that you resolve any disputes with your client in arbitration rather than going to court. Arbitration is intended to be fast, informal, and inexpensive. The arbitrator rules on the case instead of a judge. The arbitrator’s judgment can be enforced like a regular court judgment.
When to give up?
If you know that the client is insolvent, has gone out of business, or you can’t find them, you should consider writing off the debt. As the saying goes, “you can’t squeeze blood from a turnip.” At this point, you should cut your losses and move on. More time wasted trying to chase this client will cost you more because you could be working with new clients who will pay you. In the future, you may want to consider enhancing your engagement letter (download a sample engagement letter) or contracts for your clients as well as structuring your services to get paid in advance rather than invoicing them later. No matter what happens it will be a learning experience. Building safeguards into your policies going forward will help prevent future late payments.
Disclaimer: The information provided on this site is not legal advice, and no attorney-client or confidential relationship is or will be formed by use of the site. The information contained herein is intended as legal information only and of a general nature. All areas of the law are fact-specific. You should consult with an attorney licensed in your jurisdiction about your particular situation and circumstances.
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