What to do if client doesn’t pay or refuses to pay?

If your business operates on an invoicing system, you might be familiar with late payments and perhaps even nonpayment. There are many reasons why customers don't pay invoices on time (or at all), from lost bills to unexpected additional expenses that customers realize they cannot afford. Many small business owners struggle with how to best ask for overdue payments without being rude. However, regardless of the circumstances, an unpaid invoice hurts your business. You need to act if you want to keep your cash flow healthy being candid with customers and having some backup strategies at the ready is key.
 

How to recover payment from a client?

In a case like this, you would want to deal with the problem head-on, but being straightforward doesn't have to mean being aggressive. If a client or customer hasn't paid a bill on time, here's how to ensure that you get paid while maintaining a good relationship with the customer. Here is what you can do to ensure payment from your client:

1. Research the Client Before you agree to work with someone, research the person. Does he or she have a local reputation for paying on time, or do other small businesses refuse to work with the person because of late payments? If the prospective client has a bad reputation around town, you might want to avoid dealing with him or her.

2. Make a Contract You should have each client sign a contract with you before starting work. The contract should detail the project you'll be doing, how much the client will pay you, and when payments are expected. It will also state that you'll charge late fees if the client's invoice remains unpaid for a specific time. Be upfront about how much is the late fee. That way, if you have to take legal action, the client is legally bound by the contract. .

3. Get Payment Upfront for Larger Projects Many small businesses expect a percentage of payment upfront before work has started. Some expect payment during the project when each stage is done. This way, if the client doesn't pay the first invoice on time, you can stop working and refuse to finish the project until you get paid. Or you know not to even start the project if they won't pay upfront.

4. Charge Late Fees Small businesses should always charge late fees for unpaid invoices. Set up a structure for late fees that you use on every client, ideally a written policy on the contract or invoices. Start small, perhaps 10 or 15 days after an invoice goes unpaid. You can send a message beforehand that because the invoice has gone unpaid for so long, you're going to have to add a late fee if it isn't paid within 48 hours, or something similar. You did the work, and they aren't holding up their end of the bargain. So a late fee at this point is completely fair. Keep tacking on those late fees if they still haven't paid after your reminder.

5. Try Other Contact Methods So, your contact person isn't responding to your messages. Try reaching out to someone else at the company. Get an email address or a phone number from the business's website, LinkedIn account, or social media profile. If sending online messages isn't working, you can call. If that doesn't work either, and the client is in the same city as you, stop by the client's office. It might not be worthwhile for a small invoice that's unpaid, but if the client owes you a heavy sum and is late on a payment, an in-person visit could do the trick.

6. Stop Working It probably goes without saying, but don't do anything more for a client with a late invoice. Many small businesses expect payment partway through the agreement to ensure that the client will actually pay. Plus, you have more leverage for getting that invoice paid if the client is still waiting on half of a project. Whether you have more work to do for that client or the client wants to hire you for something else, don't do any more work until you get your money. Even after you get paid, depending on how much of a hassle it was, you should consider not working with that client again. If you do, charge them half up front, and tell them you expect the invoice to be paid before the final project is delivered. Otherwise, find clients who will pay you on time.

7. Ask for a deposit If you ask for a portion of the payment upfront, you'll absorb some of the hit. Asking for a deposit or retainer is common for freelancers when they negotiate with clients and will help cover the expenses or time that you already put into a project. If workers in your position do not typically charge retainers, consider installment fees, which are paid as you complete certain parts of the job.

8. Offer early payment discounts For large invoices, your customers may be more likely to pay in full (and sooner) if you offer discounts for early payment. For example, if you file Rs. 10,000 invoices due 30 days after receipt, then you can offer a 3% discount (Rs. 300) if your client pays within 15 days. You can also stagger your early payment discount by taking this discount down to 1% (Rs. 100) if paid between 15 and 30 days after invoicing.

9. Allow payment in installments If slightly delayed client payments won't drastically interrupt your cash flow, installment-based payment plans can create a middle ground for you and your client. For the Rs. 10,000 invoice example, you could offer a payment plan of Rs. 5,000 within 30 days and then one Rs. 2,500 payment every 60 and 90 days after the invoice, which can maintain your cash flow while easing the client's burden.

10. Seek Legal Action Many small businesses don't want to seek legal action because it's expensive, time-consuming, and a little nerve-wracking. However, if you have tried all the tricks and are yet unable to extract your pay from your client, hiring a recovery lawyer can be a good option. A recovery lawyer, owing to his years of experience in dealing with such cases knows what legal procedures will make your client release the payment. Sometimes just sending a legal notice is enough to spur people into opening their cheque books.

Advocate Chikirsha Mohanty

4.0 | 2+ user ratings Greater Kailash - 1, Delhi
5 years

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