Owning a small business can be empowering, but it’s not without obstacles. One of the biggest challenges many small business owners face is past due invoices. An overdue payment can disrupt the cash flow of your business, creating a ripple effect that can impact everything from inventory to employee salaries.
It’s easy to become frustrated at clients not paying invoices, but before you lose your cool, take a deep breath. If you’re wondering how to collect money from clients who won’t pay, we have some tips. This step-by-step guide walks you through how to get a client to pay an overdue invoice.
How to Collect an Overdue Payment: Your Step-By-Step Guide
1. Make sure the invoice hasn’t been paid.
When you follow up on past due invoices, make certain there is money to be collected. No one wants to receive an email for unpaid invoices that have already been paid.
If you’re getting paid by direct deposit, Paypal, or Venmo, these payments can sneak through to your bank account without you even noticing it. Double-check the invoice by going through your records and business bank accounts to verify if it’s an actual overdue payment.
If the invoice has already been paid, you have nothing more to do! But if you confirm that your client hasn’t paid, move on to the next step.
2. Try the “speak softly” approach.
Sometimes, you run into clients not paying invoices because they don’t have the money and are too ashamed to admit it. If a client doesn’t respond to an overdue invoice email, try the “speak softly” approach.
Let them know that you’re willing to work out an installment plan if they have trouble with an overdue payment. It’s possible that your client was dealing with a personal problem that derailed their ability to pay you.
You can make more headway in these situations if you show a little empathy and make accommodations for your clients when possible.
3. Send an email for unpaid invoices.
At this point, you’ve probably already called or emailed your client regarding the invoice. That leaves you with one conclusion: your client is either ignoring you or has fallen off the face of the earth.
That’s why the first thing you must do is communicate about the overdue payment in writing.
It’s important to have a paper trail so that you have something to point back to in case you need to take your client to small claims court over the overdue invoice payment.1
Speaking in person or over the phone may feel more efficient, but it gets tougher to prove your case if there’s no evidence regarding what was said during that conversation. Instead, be as straightforward as possible in a letter or email.
Here’s a written example of how to collect money from clients who don’t pay.
* * * * *
Date: XXX
Dear CLIENT NAME:
I’m writing/emailing to advise you that you have an overdue payment for PROJECT NAME, which was due on PAYMENT DUE DATE. I have made numerous attempts to contact you to address this invoice, with my last contact being on DATE.
If you do not pay this late invoice (attached) by DATE, I will be advancing this matter to my attorney to collect on this debt.
Thank you for your prompt attention to this matter.
BUSINESS OWNER’S NAME”
* * * * *
You can write something similar to send to your own clients, but whatever you do, make sure it spells out clear expectations for the next steps that will occur if a client doesn’t pay.
You’d be surprised at how quickly clients respond to a notice that contains the words “attorney” or “debt collections.”
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4. Get outside help for clients not paying invoices.
If your client still hasn’t responded to your demands or just straight-up refuses to pay, it’s time to call in some outside help.
Small business owners generally tend to hire debt collection agencies or attorneys, but the best option for you will ultimately depend on the size of the amount you are attempting to collect.
Keep in mind that anyone you hire to help you collect the debt will require a significant percentage of it as payment, so be sure you know exactly how much your past due invoices are worth it before you sign any contracts. When you use a debt collection agency, you will recoup only a percentage of the final invoice amount.2
5. Consider accepting a smaller invoice payment.
If you don’t want to go through the process of hiring an attorney or you can’t find a debt collection service that specializes in smaller debt amounts, your last-ditch effort might be to offer to reduce the amount of the overdue payment.
It may feel unjust to have a nonpaying client get away with only giving you a fraction of what they owe, but it’s better to accept some payment rather than nothing at all.
Offering a smaller payment option isn’t a guarantee your client will eventually pay up, but it likely won’t hurt to try.
6. Avoid clients with past due invoices in the future.
This isn’t advice for how to get a client to pay an overdue invoice as much as a step to ensure that you don’t work with that client in the future.
Whether you create a vision board of clients that have not paid or have a small notebook with the names of non-paying clients you want to avoid, try to protect yourself from getting into this situation again by keeping track of clients that have not paid.
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How to Prevent Unpaid + Past Due Invoices from Happening Again
Collecting an overdue payment is mentally exhausting, so it’s important to put safeguards in place to prevent it from recurring. Here are some recommendations for how to collect money from clients who won’t pay:
Ask for a deposit before starting work.
A client who will pay upfront will probably pay once the project is finished. A reasonable project deposit (say, 25% or 50%) lets the client demonstrate that they are serious about paying you. Plus, if the client were to disappear or refuse to pay the final invoice, you at least have something for your hard work.
Offer various payment options and plans.
If you specialize in projects that require larger payments — like a tree removal specialist or a lawyer — you may find it easier to collect on past due invoices if you offer installation plans. For example, if you’re working on a $1,500 project and a client seems nervous about the price, offer payment installations. It might be easier for them to pay in chunks rather than at one time.
You also should think about expanding your payment abilities, especially if you take only cash or personal checks. Traditional checkbooks are becoming obsolete, and more people are using payment services like Venmo or Apple Pay.
Recognize the warning signs of clients not paying invoices.
Eventually, you’ll develop a sense for identifying a trustworthy client, and someone who will probably be more trouble than they’re worth. Consider running the other way if your client exhibits any of these signs:
- Gets nervous or uncertain when discussing project fees
- Starts making excuses around paying any upfront deposits
- Is difficult to reach them, whether by email or phone
- Insists on a different type of payment that you don’t accept
- Post-dates personal checks
Collecting an overdue payment from a client is a frustrating and time-consuming process, which is why it’s worth putting safeguards in place to make sure it doesn’t happen to you.
But even if it does, don’t blame yourself — it happens to the best of us. Just use the above tips, and you’ll increase the odds of making certain you get paid for all of your hard work!
References:
- Learn more at Businessnewsdaily.com.
- Learn more at Peopleclerk.com.