While most people are honest, you will occasionally deal with someone who is not. You deserve to be compensated for your work and if a customer refuses to pay their bill, you have recourse to collect what you are owed.
Your contract should state how soon payment is expected and what constitutes being late. Generally this is 31 days, but it can vary. Be sure that both the contract and the bill clearly state when payment is due. If you plan to charge a late fee for past due invoices, make sure the details are in the contract your client signed before you started work. Using an invoice management system will allow you to easily see what bills are past due, and can send reminder invoices with the push of a button.
Sending a bill to collections should be a last resort. Not only does it give your client the benefit of the doubt, but a collection agency will take a percentage of the payment (sometimes as high as 50%), so you will not receive the full amount. Having a debt sent to collections will affect your client’s credit rating for years so be sure you have tried to work out a way to receive payment first.
Sometimes the problem is that your client legitimately can not afford the bill at the time. Take a little time to find the root of the problem and think creatively for solutions so you receive what you are owed.
These are the steps to take when a client’s bill is past due:
- Follow up. Don’t be afraid to send additional letter or call to check on the status. When a client is late with payment, it directly affects your business and cash flow. While you do not want to be aggressive, you do want to be assertive and let your client know that you expect payment. Be open to setting up a payment plan so your client can meet all their obligations, and you still get paid what you are owed.
- Send a delinquent payment demand letter. This is a great time to get a lawyer involved in the process to make sure all procedures are correctly followed. This letter should be sent via certified mail and state that legal action will be taken if the bill is not paid.
- Hire a collections agency. After you have given your client time to respond (many recommend 90 days), you’ll want to look for a collection agency that is licensed in your state and has a track record of working with your type of business. The agency may charge a flat fee, take a percentage of what money is recouped, or buy your invoice outright at a discount. In all instances, you will not receive 100% of what you are owed due to the fees from the collection agency.
- Or use small claims court. If you prefer not to use a collection agency, you can file a lawsuit against your client. Small claims court is perfect for small business and self-employed people because it is designed to eliminate expensive attorney fees. However, not all states have small claims court. If your state does not, you will have to file a lawsuit. In that case, you will incur attorney fees and court costs.
While it’s unpleasant to think about conflicts over money, it does happen in business. Knowing your options gives you the power to make good financial choices for yourself and your business. If you need it, having a plan for dealing with delinquent payments will make it easier for you to follow through, and recoup the money you are owed.
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