What to do when a client won’t pay up

Pretty much every freelancer, consultant and independent business owner has come into contact with clients who, for one reason or another, don’t pay for products or services in a timely manner. This can be painful, especially for a small business, since it interrupts cash flow and makes it more difficult to honor commitments. Telling a supplier, employee, landlord or supermarket cashier that you can’t pay on time because a client hasn’t sent in payment due is unprofessional and unlikely to enhance your reputation in the business world and beyond.

On the other hand, when approaching debt collection from deadbeat clients, going in with guns blazing, angrily demanding payment and threatening legal action right off the bat, is not necessarily the best move. You don’t want to be known as a hard-hearted businessman no one wants to work with. And sometimes playing Mr. Nice Guy can get you paid faster than turning the screws. Follow the protocol below step-by-step, and hopefully your customer will fork over cash before you need to go to war over it.

Make a phone call

If payment is overdue, the first step is to call the client and politely remind him of his debt. Emails are easier to ignore than phone calls, so call and ask to speak to the person authorized to write the checks. Listen politely to the reason the client hasn’t paid yet. The best scenario is that he or she simply forgot and payment is forthcoming immediately.

If the client explains that he or she is having some financial issues, offer flexible payment options, such as credit card, Paypal, splitting the bill up into monthly increments or waiting a few more weeks. Your client will appreciate your compassion and put you at the top of the list next time payment is due. And you’re better off getting the money this way than any other – and much better off this way than not getting it at all.

Send a letter

If your phone call didn’t solve the problem, try sending a letter – yes, by snail mail. A letter is more official than a call, and you can keep it on file in case you have to go to court to collect. The letter should be polite, so as not to antagonize the client, and it should contain an itemized list of what services or products you provided, how much they cost, and the steps you’ve taken so far to reach out for payment.

At this point, if the customer owes you a large sum, try collecting a portion of it. You would rather get paid something than nothing, right? Next month, you can always send another letter asking for a second installment of the amount due.

Take legal action

A lawyer’s letter is often enough to convince a client it’s time to pay up. It’s not usually worth anyone’s time and money to fight you in court, so just the threat may be enough to get him or her to cough up payment. If that doesn’t work either, consider filing in small claims court.

However, you should only go this route if the customer seems to have the means to pay but is holding out on you for some other reason. If the money isn’t there, no amount of verdicts in your favor will get you your money.

Debt collection in small claims court should be pretty straightforward and should not even require the hiring of a lawyer. When the debt is larger than small claims court will hear, though, you have to take it to a superior court. In superior court, it is recommended that you hire a lawyer to represent you and prepare you properly for the case. So consider the costs and potential outcomes involved before you take this step.

Hire a collection agency

An alternative to legal action is a collection agency. The downside of this route is that you have to pay a percentage of the collection to the agency – usually around 25% to 40% of the total. Going to court also costs money, in lawyers’ fees and lost work time, so you may find it worthwhile to let the collection agency do its thing while you continue to run your business.

If you have to resort to court or collection, your business relationship with this client is pretty much over. But if you continue to be polite throughout it all, you’ll maintain your professionalism and your reputation as an amiable business person.