October 13, 2022
What to Do When a Client Doesn’t Pay
Has a client not paid you? Stopped responding to your emails? Or has their card bounced (yet again)? Trying to figure out what to do when a client doesn’t pay you is super frustrating – and definitely isn’t one of the enjoyable parts of running an online business.
There’s nothing worse than not getting paid – and then not knowing what you can do about it. But just because this is an unfortunate aspect of doing business, it doesn’t mean there’s nothing you can do if someone doesn’t pay you for a service.
What to Do When a Client Refuses to Pay
There are actually two separate parts that need to be addressed when figuring out what you need to do when a customer is refusing to pay for work done. The first part is what to do to try to get paid right now. The second is looking internally in your business to see if there’s anything you can do on the operations side to lessen the chances of this happening going forward.
Here I’m going to address the steps you can take to deal with the immediate issue of getting the payment your client owes you. For how you can set up your business to try to prevent this issue in the future, check out this video where I teach you my entire prevention system method.
Options When Your Client Refuses to Pay You
Before getting into the specific steps you can take for how to deal with customers who won’t pay on time or refuse to pay for work done, please know so many business owners have faced or will face this issue at one point or another. That doesn’t make it ok, but you need to know you’re not alone and that this is just a normal part of doing business. It has nothing to do with you.
While the goal is obviously not to have this happen frequently, it happens to everyone. And there’s stuff you can do about it, so let’s get to it!
Step 1: Check Your Contract
The very first thing you want to look at whenever a client doesn’t pay you is what your contract says (you do have a contract, right?).
Why? Because your contract is essentially going to be the guiding principle here. So, if a client doesn’t pay you, the contract is the thing that says they owed you money, what amount they owed you, and what amount they owed you by what day – and what the consequences of not doing so are.
Any good contract should talk through what happens when a client doesn’t pay. For example, is access to your course removed, are there late fees, etc.? And what happens when the client finally (hopefully!) rectifies the payment?
Unfortunately, without a contract there’s really no way to enforce the payment you’re owed.
If you don’t have client contracts that have very clear payment terms, I would encourage you to check out all my DIY legal templates (my contract templates include very clear payment terms, as well as what happens if people don’t pay, and what happens if they’re late on making a payment).
You can get client and course contracts a la carte or get them all as part of my Ultimate BundleTM program.
Step 2: Decide How to Go About Collecting Payment
After looking over your contract, the second thing you need to do if a client won’t pay is decide what path to take to collect payment.
Are you going to try to handle this yourself? Meaning, are you going to be the point of contact, the one reaching out to try to convince your customer to make payment? Or are you going to outsource this to someone else to collect on your behalf?
Both options have some pros and cons, which we’ll discuss below to help you make the best decision.
Side note: I wouldn’t recommend reaching out to a client or going to collections if someone is a day or so late on a payment. You should have a process in place for what amount of time is reasonable to let pass before taking any action on collections.
Handling Payment Collection Yourself: Pros and Cons
Some of the benefits of reaching out to a client yourself when trying to collect payment are:
- You get to handle it very quickly (outsourcing this extends the time it takes and has more steps involved).
- You get to control the tone of the conversation. Depending on the circumstances, some people think it’s too much to send it out to collections or an attorney.
- It can be very cost effective since you’re the one handling everything. This means you get to keep the payment once it’s received instead of giving a cut of it to someone else.
- Yep, these pros are pretty good. But you’ll also want to consider the cons come with trying to collect payment yourself:
- It costs you time, which you could spend bringing more money into your business and creating more.
- It can be emotionally and mentally draining, taking focus and energy away from other parts of your business.
- Often, people may not take the situation as seriously or be compelled to pay what they owe when the request comes from you. But when they’re getting a letter from a lawyer or a call from a collections agency, most people will take some action.
Which leads us to the pros and cons of outsourcing.
Outsourcing the Collection Process: Pros and Cons
If you’re not going to try to handle collections yourself, another option is to outsource the work. You can find plenty of collections agencies online or look for a local attorney who specializes in collections.
The main pros of outsourcing are:
- You get this unpleasant task off your plate, enabling you to focus your time and energy on other aspects of your business.
- As mentioned above, it’s just a bit more intimidating when someone is being contacted by a collections agency or a lawyer than directly by the business owner. So, it can be more effective in getting your client to take action and pay you.
On the flipside, the biggest downside of outsourcing is sharing the payment. Something a lot of people don’t know is that a collections agency might take less than what you’re owed – they often negotiate a settlement on your behalf and then take a percentage of what they actually collect. So, by the time everything is settled, you’re left with a much smaller amount than what you were originally owed.
The good news is that many collections agencies will let you set the floor as low as you’re willing to accept. While that can give you a peace of mind to know you won’t get less than a certain amount, you’ll still likely end up with less than what you’re owed, in addition to paying a fee to the agency or lawyer.
As your business grows and you begin taking in a lot more payments, this process kind of becomes inevitable because it’s just not practical for you to handle it all on your own. In fact, most major companies and large online businesses have access to collections agencies as part of an automated system. It makes the payment collection process smoother, more efficient, and less stressful.
You Still Need a Contract
That’s right! If you do decide to go the attorney or collections agency route, you’re not off the hook where contracts are concerned. A contract is always going to be proof that a client owes you money, making it a critical component of being able to get paid for your work. No matter how you choose to go about collecting payment from customers going forward, you’ll always want to have contracts in place!
Now that you’re equipped with some immediate steps for what to do if someone doesn’t pay you for a service, you’ll want to be proactive and establish systems to minimize the likelihood of this happening in the future. There’s a lot you can do to protect your business, decrease payment issues, and automatically collect payments if they do fail – find out how in this video.
Want to learn more about which contracts you need for your online business? Watch my free legal workshop called “5 Steps to Legally Protect & Grow Your Online Business”. And if you just need a contract template so you can ensure you have solid payment terms that are enforceable, you’ll want to check out my legal templates or the Ultimate BundleTM.
For more legal tips and a behind the scenes look at how I built a multi 7-figure business, drop your email below. I’ll be in your inbox twice a week with the best nuggets, podcasts, and business gold I can offer.
So What Do you think?