Consumer Handbook: A Small Business Owner's Guide To Collecting Unpaid Debts
When you run a small business or work as a freelancer, you depend on your clients for income. So what happens when a client doesn’t respond to payment reminders, or simply refuses to pay? Small business owners have several options at their disposal to collect unpaid funds.
Every situation is unique, and what works in one circumstance may not be effective in another. Keep in mind what you know about your client, and use your judgment to decide how to proceed.
As soon as a payment becomes overdue, send your client a follow-up email reminder. Be professional and polite as you let them know their invoice is now past due. Be sure to include the payment due date, remind them of payment methods you accept, and clearly outline the late fees included in your payment terms. If your emails seem to be getting ignored, give your client a call personally. Be friendly and polite as you find out what the situation is, and see if you can work out an agreement.
If you still don’t receive payment from your client, stop working on any pending projects, and let the client know you won’t restart work on their project until you receive a payment. This may be enough incentive for them to settle their account, but if not, at least you won’t lose any more time on an unpaid project.
If polite calls and reminders don’t work, it’s time to take more serious action. Depending on how much you are owed and whether or not you are willing to take legal action, hiring a collection agency may be a good option. At this point, if your client still hasn’t paid their bill or you haven’t been able to get a response from them, have an attorney draft a letter. You will have to pay for this, but the cost is usually reasonable.
One way to prevent unpaid debt before it happens is to require payment up front for a job. At the very least, consider asking for a sizable deposit on the total value of the contract – especially if you’re working with a new client. Before you begin working, create a detailed contract that outlines when work is to be completed and when payments are due.