At some or several points in every
business owners life, you can expect to deal with a non-paying or slow-paying
In my earlier post – Getting your Clients to Pay-Up – Part 1: Tips for Protecting Yourself from Non-Paying Clients – I outlined some measured approaches that
your small business can put in place to protect it from the potential scenario
of having to deal with a non-paying client.
But what if, despite these measures,
you are confronted with a client that simply won’t pay-up on time or at all?
Here are some options your small
business might consider for collecting or pursuing client debt.
Payments – Have a Collections Plan to Fall Back On
We all want to get paid, but no one
wants to lose a client – even if you never work with them again, you want to
maintain your good reputation. So it’s worth putting some thought to a
structured and methodical collections plan for your small business. Here are
Re-bill overdue bills immediately – As soon as
your first bill is past due, re-bill promptly as a gentle reminder.
Alternatively send a monthly statement with the amount-owed (with interest)
clearly labeled as past due.
Know the book
keeper and maintain a cordial tone – If a payment is past-due, make a point of seeking out and ask to be
connected to Accounts Payable (call the client front desk or operator). Check
whether the invoice was received and if you can help in any way. All the while
maintain a steady and friendly relationship. Don’t hang up until you get a
verbal agreement confirming when the payment will be made. Follow-up over
e-mail confirming the conversation and maintain a paper trail.
Never apologize – Stick to your
guns and never apologize for chasing payment or even consider bargaining, no
matter how much empathy you feel for a client who is struggling financially or
2. The Legal Approach
If your cordial
approach has failed and the invoice runs past due more than 60 days, you might
want to consider offering a payment plan. Alternate options include working
with an attorney to issue a demand payment letter or filing with
a small claims court. The latter is a cheaper option since a lawyer need not be
to Do if your Client Goes Bankrupt
If your client shows signs of going
bankrupt, consult an attorney and always file a proof of claim.
Warning signs that bankruptcy might be in
the cards for your client can include slow payment, lack of communication,
adverse industry conditions, etc.
Once bankrupt, the debtor has the
benefit of an automatic stay immediately upon filing a bankruptcy petition. This
stops you from taking any further action to try to collect the debt unless, or
until, the bankruptcy court decides to the contrary.
For more information on debt collection
options and the legal and regulatory ramifications read the government’s “Plain English
Guide to Collecting Debts“.
And this useful article from Inc.com – “How to Collect
from Anyone (Even Enron)” – offers tips for 30 ways to
get paid in 30 days!