What to Do When They Won’t Pay.


When a customer for whom you have provided a service becomes remarkably late, or simply doesn’t pay you at all you get this wrenching feeling in your gut. It’s the fear that all the time, money and energy you invested might be for nothing. For many of us who generate our own capital during the startup this tends to be extremely painful. You have more on the line. So, you’re tempted to do your worst to convince them to pay.

I’ve made some big mistakes in my eagerness to get off the ground and break into a sprint. Many of these mistakes have contributed to the issue of late payments or non-payments. These were made out of naivete and a general sense of trust in the honor system. Many of them came after I was not paid. These were made because I got seriously pissed after I realized there is no honor system in the business world.

See in my early days, as is the case for many entrepreneurs, I was hungry to get clients (actually still hungry). Hunger can be a good thing. It’s usually when someone gets hungry that they come alive. Hunger brings to the surface that survival mechanism that often lies dormant in all of us. Hunger takes away shyness and hesitation. The hunter-gatherer in you comes to the surface.

Just as we are tempted to do desperate things to win clients, we are tempted to do desperate things to get our money.

Preemptive Measures

If you are in negotiations with a new or prospective client, you must be upfront about your expectations as you can bet they will be upfront about theirs. That is why the following can help you prevent late payments or non-payments:

– Be clear about fees. You don’t have the resources to do work for free forever. Just as the client will explain to you what they need, you tell them what you need. Because I was hungry, I have completed work orders for potential clients without discussing fees and timetable for payment. Because of this I have been burned. But that is only because I put myself over the fire. Tell your new client that you will charge this much for your service and agree right then as to when payment will be received. Resist the temptation to feel too focused on the bottom line and/or the feeling that you are making too many demands. Making money should be high on your list of priorities.

– Get it in writing. One thing about operating under an honor system is the stupidity that goes with providing services without having drafted, reviewed and signed a Service Level Agreement. This written agreement holds proof that you have discussed terms with your new client, and carries alot of weight if the delinquent payment ever becomes a dispute. No one can deny a written agreement that they have signed.

– Check your client’s credit. You should not be concerned that checking your client’s credit is intrusive. This information is available to you and you can make use of it. From high profile Fortune 500 companies to Billy Bob Smith, we all have a credit history. Reviewing this information can be prophetic when you are talking about doing business with someone.

Customer – Friendly Approach

If you have followed through with preemptive measures and everything checks out, then you’ve got a new client. But even this is not fail-proof. You WILL have times when a decent customer delays payment or does not pay at all. What do you do then?

The same approach that helped you win that client can assist you as you work with the client over payment. The thing to remember is anger and blowing up will more than likely work against you. Turning up, “Mama Said knock You Out” and driving over there with your brass knuckles is crazy. Or talking to their mother. So, here’s what you can do:

– Be prompt with accounts receivable. I find that if I appear disinterested in receiving money that clients will lean upon that as a queue to delay. So if you invoiced them 30 days ago and payment is due today, expect it today. Then, if it does not come, contact them. This will show your client that you are professional and serious about the terms you discussed.

– Talk to them before you email. In this world when everyone works from home and you may never even meet your customers, the temptation is to use only email as a means to communicate. Many times right there you will be able to work out lots of issues. Maybe they were late in receiving payment from there client. There could be a host of issues. Or, right then you will find out if they will pay you at all.

– Designate another employee to make the call. If you have employees, it helps to designate a certain employee, who preferably doesn’t sound like Snooky from Jersey Shore, to call regarding payments. Another party calling on behalf of your company both makes your company more substantial in the customer’s mind and prevents any arguments you may have because of feelings.

The More Firm Approach

Then there comes the dreaded moment when it hits you — this fool is not going to pay at all. You’ve taken a preemptive approach and you’ve worked with them as much as you can on the customer service end. You even discounted your fee and waited a little while longer and they still didn’t pay. Now, you’re upset. All this work for nothing. What then?

It is still not time to break legs or use swear words to get what you deserve. There is a way of being firm and not compromising your integrity. Here are some suggestions:

– Make a decision about your relationship. Is this someone you want to trust again? Do you want to put yourself through the pain of expending your own precious resources and not being compensated again? Is this client worth you bottoming out and closing your doors? You have to decide if you want to keep this client or move them to the inactive pile. Truth is, when you discard a client that doesn’t pay, you will find another client who does. Do not let yourself be burned again. Discard them.

– Contact your lawyer. It doesn’t cost alot to have your lawyer draft a letter to the company in regards to your rights as a vendor to recieve payment that was promised. A formally drafted letter from an attorney sends a powerfully message to someone who refuses to pay. The message goes, “We are not playing”. Usually this is effective and your awaited payments follows without any words from the now inactive client.

– Report to the Better Business Bureau. This is assuming you researched this person before doing busines with them and they are listed with the BBB. They may have previously carried an A+ rating but you can affect that. This is a powerful means of sending a message. No one who is listed with the BBB wants the entire public to know that they do not pay. Their business will shrink and die if everyone knows they suck. There are other vendor rating sites you can visit as well — Kudzu.com, ChoiceVendor.com, etc. Give them an honest rating and they will notice.

– Take out a lien. This of course applies to my industry where construction and repairs are involved. It may not apply to your industry. Typically, if a client doesn’t pay, a contractor can take out a lien on the property they have worked on. The cost is minimal and the message is huge. A house cannot sell until all liens have been paid off. If your now inactive client is responsible for selling the property, they will have to pay you before selling. Even if they are not directly responsible for selling, they will still have to pay you. The time, frustration and energy they will spend on addressing this lien is enough to give you the warm fuzzies. But, mainly the pay that comes as a result.

– Take them to court. If all else fails, take them to court, friend. If your attorney sent a formal letter, follow through with it. You have a written contract. You have documented attempts to obtain the promised pay in a customer-friendly manner. You also have the lawyer on your side. You’re armed and ready to win. Hopefully, this will never happen. I hope that you never have to carry it this far because after the process has gone this far you have already spent valuable time away from doing what you started your business for — focusing on other people’s needs.

I’m telling you, if you follow the process you will be more likely to receive fair payments on-time. You will also be more likely to keep a good customer. Lastly, you will be more likely to correct any failures to pay from irresponsible clients who refuse to pay.

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