Everyone on your team knows about your client. They’ve done work for the client. You may have even mentioned the client and the money coming your way to your family. You’ve delivered your work, or services, or materials. Now it’s time for the client to pay.
Suddenly, they’re not so responsive. You cut them some slack and call or email the next day. Still nothing. You exercise virtuous patience and wait an entire three business days before your next round of calling and emailing. Slowly, you begin to feel like you were scammed. Stolen from.
The Client That Won’t Pay
Fortunately, you can stop beating yourself up that you should have seen it coming. Sure, there are red flags to look for, but you can trust that companies of every size deal with the client that doesn’t pay. From small freelancers, to hotels, to gigantic multinational corporations. Every company gets burned. (The large companies even have their own books full of policies to mitigate these risks!)
Sure, there are ways you can flag clients from the get-go (and you will develop systems), but in general, clients who skip bills are so common that the IRS has tax codes about how to handle commercial debt, and entire debt collection industries have been built because of this.
The Day After Payment Deadline
Your action plan depends heavily on your situation. Did you just provide services? Did you incur costs to deliver your end of the deal? Were there materials that were involved?
If you are a larger company, you need to consult with your insurance companies and business lawyer. The action plan we cover here is very basic, so we recommend that if this is a serious and common danger for your company, or if one client skipping a bill will put you out of business, you speak to a business lawyer before doing any deals.
That being said, it’s good to remember a few key details. Always be the saint in the situation, especially if this goes to court. The day after deadline, you can send a friendly reminder via phone or email.
If a few days have gone by, send a more dry and to-the-point reminder. However, it should be free of any negative tones or attitudes on your part.
Fifteen Days
If two weeks have elapsed since the payment deadline occurred, and your client hasn’t reached out to you to work something out, now it’s time to start getting concerned. You can send a formal letter, via registered mail, to the client. (If you don’t know the address, skip to the next section.)
Never get belligerent or angered. Remain calm at all times, because you don’t know their side of the story. Even when it appears someone is trying to rip you off, there are two possibilities. The first is that they are trying to sort their finances out and are too embarrassed to call you. The second possibility is that they intend to skip on the bill, but your harsh words could come back to bite you.
Thirty Days
If you have still not established contact with the client and worked something out, you have a few options. First, you could call your business lawyer to send a letter on your behalf. Some business lawyers also have experience collecting on debts. If this is the case, you could consider having them handle this debt. Another option is to have a debt collection business manage the debt, and they will begin collection activities.
In some cases, you may not have everything you need to collect. You may not have their address. Maybe you didn’t have a solid contract. If this is the case, then you need to review your client intake process to avoid this in the future. Otherwise, it may be time to sue.
Ninety Days Or More
If 90 days have passed since the payments were due, and you have sent them multiple letters and emails, it is time to start the lawsuit. Contact your business lawyer, or have your preferred debt management partner handle the case.
If the address is not known, once you’ve opened up a case, you can begin subpoenaing parties related to the case to obtain information about the client. Under direction of a lawyer, you can subpoena their phone company to obtain their address, and the banking institution that they pay their phone bills with. A good debt collection lawyer or management partner will be aware of a myriad of strategies to collect on debts.
Eventually, you’ll either recover the money through a judgment or settlement, or you can decide to write off that debt against your taxes (use direction from a qualified accountant.)
Try not to bad mouth anyone, and keep your head about you. It is an emotional issue, but the businesses that survive are not the type to lose their heads every time someone they did business with did not hold up their end of the deal.