What should you do if a client stops paying?
There are many types of self-employment, but whether you call yourself a small business owner, entrepreneur, freelancer, or independent contractor, you’re likely responsible for handling nearly every aspect of your business with minimal support. As a freelancer, you don’t have a separate accounting department to manage your billing, which can create challenges when things don’t go according to plan. Even the healthiest client relationships can hit snags, and it can be difficult to tell what went wrong and how to fix it.
What should you do if a client stops paying or doesn’t respond to your invoices? If this is happening to you, read on before taking action. The right advice can save you a lot of time and headaches. If it hasn’t happened to you yet, there is no better time to prepare yourself with a plan for when it inevitably does.
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Start by organizing your process
The best way to deal with billing issues is by setting up your business to prevent it from happening in the first place. While you may not have the resources of a larger operation, there are simple and affordable steps you can take to get organized today. Think of the time and money you spend on your process as an investment that will pay dividends down the line.
Treat billing with the same care as the rest of your business
The first step in making sure you get paid is to know who owes you, how much they owe, and when they’re supposed to pay. You need to have a system for keeping track of your invoices, including the date, amount, and status. A good customer relationship management (CRM) platform like Zoho or accounting software like Quickbooks is a great investment. If you don’t have the time or budget to put into new software, this can be as simple as keeping a spreadsheet.
Once your bills are organized, you can easily keep track of the status of each invoice. Make note of when you send the invoice and schedule regular follow-ups. Update the status in your system whenever something changes.
Be selective about your clients
You may not have the luxury of only working with your dream clients, but that doesn’t mean you have to work with clients who won’t pay. The steps you take to protect yourself before entering into an engagement depend on your risk tolerance. If you’re unwilling to risk your time, you can take measures to qualify clients by looking into their credit. Getting trade references on clients before extending contract terms is a common practice. If you’re cash-strapped or just getting started, you may need to compromise and either accept clients with weaker credit or spend less time vetting clients.
You should also be diligent about your contract terms. Make sure that the scope of work and the pay are fair before entering into a contract. If you discover that a project will require more billable work than you agreed to, be sure to submit a change order to modify the contract terms. Get any change orders approved as soon as possible to mitigate risk down the line. A common scenario is when a freelancer takes on work because they want to keep the client happy or just plan to bill them for the extra work down the line. Without clear and approved change orders, the client may try to withhold payment for anything beyond the original scope.
Practice due diligence if an issue arises
No matter how organized and careful you are, you may still encounter problems. If this happens, take a deep breath. There are still important steps you can take to resolve the situation without escalating it.
Make sure you’ve done everything right on your end
Sometimes the issue is on your end and has nothing to do with the client. It may seem obvious, but you need to make sure you’ve satisfied the terms of the contract and submitted all your deliverables. This includes following the client’s accounts receivable process.
Make sure you’ve sent invoices to the right person in the right department—don’t send invoices that should go to receivables to their purchasing department. Be sure you have the right contact information and double-check the email, phone number, or address for typos. If the client requires a purchase order (PO) number to issue pay, provide one. You should also have a W9 available upon request, especially when working with larger companies that may want to set you up as a vendor in their system. A W-9 includes either an EIN (employer identification number) or SSN (social security number) which identifies you for tax purposes.
Before taking any other action, ask yourself if you’ve checked all the boxes:
- Double-check the contact info
- Confirm the person and department
- Provided a PO number
- Provided a W9 if requested
Communicate openly with the client about their situation
In many cases, unpaid invoices may be the result of simple miscommunication. Maybe the client isn’t as well-organized as you are or maybe they just forgot. You don’t want to burn a bridge over a false assumption. Starting with open communication can strengthen a relationship that you thought was going sour. Go ahead and reach out to the client to find out why you haven’t been paid.
Is it a service issue? The client may have concerns about the work you’ve done for them. Do your best to learn what these are and how you can address them.
Is it a time issue? A lot of times the client will drag their feet and slow down the project, and then say they won’t pay until the deliverable is ready. Freelancers commonly work on projects in stages where each stage needs input from the client. For example, a web developer might give a client several template options for their site. Until the client responds with their choice, the project can’t move forward. The client may then get busy and be slow to respond, which prevents the freelancer from completing the next deliverable.
You can avoid scenarios like this by forecasting them in your contract. Clients often don’t know how much is needed from them for the freelancer to do their job. Be sure to clarify how much work the client will have to do and set reasonable timelines for them to complete the work.
Once you figure out why they aren’t paying you can decide what to do next. In the scenarios above, you may be able to accommodate without too much effort. Otherwise, you may need to write a demand letter. This can be as aggressive or passive as necessary, depending on the client, the situation, and the value of the relationship. State your case and offer a way forward. If you send out more than one demand letter, they should get stronger over time.
If the client won’t be happy no matter what, you might need to reinforce the contract terms.
If someone owes you money, get a Quick Collection QuoteToday!
By clicking “submit”, I consent to join the list and receive SMS from ECC Holdings, Inc, with access to our latest offers and services. Message and data rates may apply. Message frequency varies. More details on this are in our Privacy Policy and Terms and Conditions . Text “HELP” for help or contact us at +1(631)-251-7500. Text “STOP” to cancel.
Remember that your goal is to make money
Communication and due diligence may not be enough. The client may not respond, or they may respond without a satisfactory explanation. Maybe they flat-out refuse to pay. While your instinct at this point may be to take more aggressive action, it’s worth one more pause to reflect on the situation. Your goal is to make a living, and escalation may actually cost you money.
Once again, think about it rationally from the client’s point of view. Do they really owe you this money, or did you work beyond the scope of the contract? Did you miss something in the contract or communication history? If the client set a clear budget or asked you to restrict costs, you may have a weak basis for taking further action.
You can also offer them a discount on the work with a deadline to accept and see if they respond. While you may feel short-changed, this approach can be cheaper than going through collections. If you do go through collections, consider working with a contingency collection agency, which won’t charge you anything until they collect the debt. This arrangement protects you and incentivizes the agency to resolve the issue.
Take the action that furthers your business goals
If it comes time to escalate, where do you go? It depends on how serious you are about getting your money, and how long you are willing to wait. When it comes to debt collection options, you can have fast, cheap, or successful—but not all three. Take the time to research the advantages and disadvantages of each option and consider which aligns best with your business goals. We’ve put together a helpful guide on debt collection options for you to consider.
By clicking “submit”, I consent to join the list and receive SMS from ECC Holdings, Inc, with access to our latest offers and services. Message and data rates may apply. Message frequency varies. More details on this are in our Privacy Policy and Terms and Conditions . Text “HELP” for help or contact us at +1(631)-251-7500. Text “STOP” to cancel.