Tips for dealing with clients who won’t pay.

One headache nearly every business owner faces at some point is a client who doesn’t pay what they owe. In some cases, you may have to turn the account over to collections or head to small claims court—but there are other steps you can take before reaching to this point.

Make your terms clear from the beginning

A contract that spells out the work to be done, the cost, payment terms and late fees makes it clear to the client how much they’ll owe and when. If a client fails to pay, you can point to the contract to remind them of what they agreed to, the terms and that they have a legal obligation to pay their bill.

Monitor accounts receivable regularly

One way to protect your business from extensive financial damage by non-paying clients is by being aware of the first missed payment. Regularly monitor your accounts receivable. If a client misses a payment, notify them right away. Apply late fees as spelled out in your contract when sending overdue notices.

Keep the lines of communication open

Every client on your receivables list is there because you’ve developed a relationship with them. A single missed payment is an opportunity to call and check in with your client. Then let them know their account is overdue and request payment. If it’s a simple oversight, your client will appreciate that you handled of the situation with grace. If the client is truly intends to not pay the invoice, they’ll be on notice that you’re aware of the past due bill and that continuing to not pay is not an option.

Stop work until the bill is paid

If you’ve contacted the client and they still won’t pay, let them know that you will pause service or delivery of goods until their account is returned to good-standing.

Understand why people don’t pay

The reasons people don’t pay vary. Sometimes they don’t have time to pay their bills. Or they may be strapped for cash. In these cases, they may be willing to pay by credit card. Yes, there’s a fee involved when accepting credit card, usually 1.5% to 3%, but it can be worth it to keep your cash flow healthy. If you’re new to accepting credit and debit cards, check out Consumers’ merchant services.

Another reason clients might not pay is that they never intended to pay. In this case, you will have to apply persistence. Send written notices. Call repeatedly. Keep records of all notices and phone calls. If writing and calling fails, you’ll have to escalate your efforts. If the amount owed is $6,500 or less, you can file a case in Small Claims Court. You could also turn the account over to a collections agency.

There’s no way to prevent slow- or non-paying customers but you can reduce their impact on your finances by always ensuring that your clients know what’s expected of them, sending invoices regularly and stopping work until an account is up to date.

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The information provided in this blog is not intended to be taken as legal advice. Please consult legal counsel about your individual situation. Federally insured by NCUA