At some point, nearly every business will face the challenge of dealing with a customer who won’t pay. Whether it’s a one-time oversight or a recurring issue, unpaid invoices can impact your cash flow and create unnecessary stress. Fortunately, there are steps you can take to recover the money owed and prevent future nonpayments.
Steps to take when a customer doesn’t pay
If a client ignores an invoice, don’t jump to conclusions. There are many reasons why payments may be delayed. Start with a polite approach and gradually increase pressure as necessary. Here’s how to handle the situation step by step.
Follow up immediately
The moment a payment is overdue, reach out to your client. Send a friendly email as a reminder, including the invoice details and a polite request for payment. Often, a simple nudge is all that’s needed.
If there is still no response after a week or two, send a follow-up message along with an updated invoice. This ensures the client cannot claim they misplaced the original document.
Make a phone call or arrange a meeting
If an invoice remains unpaid for 30 to 60 days, escalate your approach by making a phone call or setting up a meeting. Speaking directly to your client may help you uncover the reason behind the delay.
Are they facing financial difficulties? Did they forget about the invoice? Understanding their situation can help you decide how to proceed. Keep the conversation professional and constructive to maintain a positive relationship while seeking a resolution.
Send a formal debt collection letter
When an invoice reaches 90 days past due, it’s time to take stronger action. Send a formal debt collection letter outlining:
- The original payment due date.
- The steps you have taken to collect the debt.
- A firm deadline for payment.
- Accepted payment methods.
- Possible consequences of nonpayment, such as discontinuing business with them or sending the account to collections.
A written letter adds urgency and makes it clear that you are serious about recovering your payment.
Hire a collection agency
If multiple attempts to collect payment have failed, hiring a collection agency may be your next option. These agencies specialize in retrieving overdue payments, usually on debts over 90 days old.
However, there are risks involved. Some debt collectors use aggressive tactics that may damage your business’s reputation. Additionally, collection agencies take a percentage of the recovered amount as their fee. If you go this route, research reputable agencies to ensure they align with your business values.
Consider writing it off
If an invoice remains unpaid for an extended period, especially if the amount is small, you may need to cut your losses. Instead of wasting more time and resources, focus on securing better clients who are reliable and willing to pay on time.
How to prevent nonpayments
The best way to deal with unpaid invoices is to prevent them from happening in the first place. Here are some proactive strategies to minimize the risk of nonpayment.
Research Potential Clients
Before engaging with new clients, do some background research. Check reviews, ask for references, and ensure they have a solid reputation. Just as customers evaluate your business, you should assess their credibility as well.
Set clear payment terms
Define your payment policies upfront and include them in contracts. Consider requiring an upfront deposit, implementing late fees, or offering discounts for early payments. Clarity in expectations helps prevent misunderstandings and delays.
Send invoices promptly and follow Up
Billing your clients as soon as work is completed increases the likelihood of timely payments. Set up automatic reminders for due dates and follow up promptly if an invoice remains unpaid.
Offer multiple payment options
Flexibility in payment methods can make it easier for clients to pay on time. Accepting digital payments through services like PayPal, Venmo, or credit cards can streamline the process and eliminate excuses for late payments.
Provide payment plans if needed
If a client is struggling financially, consider offering a structured payment plan. This approach demonstrates empathy and can help maintain a positive working relationship while ensuring you receive what you are owed.
