One of the stickiest situations for any business owner or freelancer comes when a client doesn’t pay. It’s a difficult situation because you want the money you’re owed, but at the same time you don’t want to alienate a client — especially if that client has paid on-time in the past.

When a client doesn’t pay, you do have a few options. You’ll have to decide what is likely to work best for you:

Write it Off

In some cases, you might be able to write off non-payment as a business debt. While a tax deduction isn’t the same thing as actually getting a dollar for dollar reduction in your taxes, and it isn’t as good as being paid by your client or customer, it at least reduce some of the pain of your loss.

However, some business debts can’t be deducted on your taxes, and if you’re an independent contractor or freelancer and a client doesn’t pay you, it’s not something you can usually term as a business debt. Writing it off might not be feasible for you.

Send the Client to Collections

Even a freelancer can use the collections system when a client doesn’t pay. When you send a client to collections, you usually promise to let the collections agency take care of the situation. They may pay you flat fee (less than what you are owed, so they can pocket the difference) or they might just take a percentage when the debt is actually paid. Either way, the move can damage the client’s credit while showing them that you are serious.

Normally, it makes sense to wait at least 90 days before deciding to send a client to collections. In between, you should continue to send your invoices and let the client know that the consequence of failure to pay will be that you will turn the matter over to a collections agency.

Small Claims Court

Another option, especially if the amount is relatively small, is to use small claims court. Each state has its own requirements and rules related to small claims court, so you need to make sure that you know the amounts involved and the procedure. Also, be aware of the fees. In some cases, it’s not worth it to take the matter further when a client doesn’t pay.

Sometimes the Threat of Action is Enough

There are times when the threat of action is enough to motivate a client to pay. You might send a professional email letting your delinquent client know that they are behind on the payment, and if the matter reaches 90 days late you will need to consult with your legal team and your accounting team to take next steps. If you have a lawyer friend or if you retain a lawyer for your business, it can be even more effective to have the lawyer send a polite email laying out the consequences of non-payment.

In some cases, just the idea that you have representation and might turn to it is enough for a client to decide to pay what they owe — and do so quickly.

Unfortunately, there might be times when your best option is to just let it go. Just remember to never work with that client again.

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I'm Max and I love helping businesses we work with to expand their businesses online. I help with invoicing, time tracking and overall business needs for business owners. If you need help contact me today.

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