Your Client Doesn’t Want To Pay… Now What?
A client hired you to do a job, you completed the work, and now they won’t pay. What are you going to do about it? Before threatening the client’s knees with a baseball bat, there are a few other options you should consider.
Avoid Non-Payment In the First Place
One of the best ways that you can ensure payment is to put forth a written contract. Written contracts don’t have to be filled with ten-dollar-words and printed on ivory bond paper. If you are conducting business with a vendor and would like to have somewhat of fail-safe, it’s a great idea to have an initial document that covers:
- The name of your legal entity
- The name of the other legal entity
- A description of the goods/services that will be exchanged and the cost for doing so
- The time-table for the completion or delivery of services, and payment (including the method of payment)
- The signed and dated acknowledgment of both parties
Contract law is different in every state, and it’s plausible that in the grand scheme of things, the contract you’ve laid out is not 100% legally binding. What a written contract really does is two things: shows your customer or vendor exactly what you expect from them and the penalty for missing payment, and it can become quite the exhibit if anything goes to a small claims court―more on that later.
You can also deter from customers not paying you by having a procedure for outstanding balances in place, and sticking to it. Customarily, you may send out a courtesy letter after an account has been past due a net of 30 days, and a harsher toned letter after 60.
Assess the Debt
As bad as it sounds, it is possible that the debt you are owed is not the end of the world, and simply not worth the hassle of collecting. You should take a step back, and think about what percentage of your yearly revenue the debt is and the overhead involved. The steps we’re about to get into for collecting payments can get ugly, and sometimes the time, headache, and its effect on business relationships don’t outweigh the costs.
If you do have an invoice system in place and you have already sent out notices of non-payment, before you get too crazy, it could be a good idea to reach out via email, get a feel for the situation, and why they haven’t settled up. This can be awkward, but fruitful. Reaching out personally can help to establish an augmented time line for payment, or, at the very least, give you a picture for whether you will be able to collect your debt amicably. Collecting payment eventually is certainly better than not collecting at all, or collecting minus legal and collections fees.
However, if you are dead-set on collecting this debt and your olive branch is ignored, now’s the time for the gloves to come off.
If the debt involved is significant enough that it is worth spending some money to get it, meeting with your attorney or finding a reputable one should help guide you to your next step. Plus, as your business expands, it can be beneficial to develop a relationship with a business attorney in the long run anyway. After meeting with an attorney, they may advise one of three routes, depending on your specific situation, and the state you’re located in.
- Sending a Demand Letter
You’d be surprised what a strongly-worded letter with a fancy letterhead can accomplish. Your attorney can write a letter addressing the debt and an outline for repaying it, along with the possible consequences for not doing so.
- Filing a Small Claims Suit
You may be advised to settle your debt by filing a small claims lawsuit in the county that your sale was transacted in. Every county has a different cap on the amount you can file a small claims suit for, so it’s possible that you may have to file for the maximum amount allowed in the county and sacrifice some of the money you are owed. If your attorney suggests this approach, you should know that most states do not allow for an attorney to represent you at the actual proceedings.
- Send the Debt to Collections
Because of the time and fees involved, as well as the implications it can have on the debtor, you should view sending the debt to collections as a last resort. You will need significant documentation of your own attempts to collect the debt for an agency to take on the debt, but an attorney should be able to refer you to a reputable agency that can help.
The most important part is that you analyze whether the amount that you are owed is actually worth the stress and paper work that collecting it can entail. Sometimes the best you can do is go about it in a logical way and cut your losses. But if the amount is too high and you can’t stretch it, by all means, go for their kneecaps.LEARN MORE ABOUT MAINTAINING YOUR BUSINESS!