Client Not Paying Invoice: How to Deal With Them

When you’re invoicing a client, you don’t expect them not to pay on time. But what if they ignore the invoice? Can you take legal action, or is there a better way?

Nobody wants to waste time chasing clients for payment, but if you’ve delivered a service and they refuse to pay, small business owners need to act. In many cases, the clients have simply overlooked the invoice, their card payment failed, or they are confused by the invoice. Simply talking to them and helping them with the payment is enough to settle the outstanding payment. If the client is not paying an invoice still, something else is going on.

In this post, I’ll introduce you to 6 ways you can get clients to pay. But first, here are a few things you should refrain from.

3 things you shouldn’t do when client is not paying an invoice

I get it, you just want to get paid for the service you’ve provided. It can be frustrating when you send invoices but don't receive payments. In any case, the right way to handle such situations is by keeping calm.

So here are a few things you should never do when your clients don’t pay:

1. Threaten them: If a client refuses to pay, threats are rarely effective. Instead, try to find a middle ground. Are they struggling with money right now or are they unhappy with the services provided? If it’s the former, try to find a solution (I propose one further below).

2. Post negative reviews: If it’s a B2B client, chances are high that they have an online presence, be that on social media or a website such as TrustPilot. Before you decide to post a negative review, make sure that you’ve exhausted all your options first. If the company is indeed unprofessional and is refusing to pay for your services, it makes sense to let others know about it so they don’t have the same experience.

3. Charge a payment method: You think it makes sense to simply charge a saved payment method—and yes, you can do that as a last resort. However, with credit and debit cards, there’s a high chance that your client will file a chargeback request with their bank. This will cause extra work for you as you’ll have to submit evidence, you might still lose the case, and it’ll affect your good standing with the payment processor.

So, instead of resorting to the three things mentioned above, here are safer ways to get customers to pay.

Is the client disputing the invoice?

Chasing invoice payment is not fun for anyone. You lose time and money doing so, plus it puts your liquidity in jeopardy.

An unpaid invoice can be even more problematic if the client isn’t planning on paying it at all. Some clients are disputing invoices—and for a variety of reasons. Maybe they found an invoicing error, or they are not happy with the services rendered. Whichever case it is, you should have a process in place to solve this issue quickly.

If that’s not the case, then you can jump to the next point.

Resend the unpaid invoice

Before you decide to jump the gun and invoice a debt collection agency or small claims court, assume that it was an innocent mistake. Simply resend the invoice and see what happens. Maybe the email ended up in the client’s spam folder, or they were out of office and missed it.

If you’re using billing software such as Service Provider Pro, resending an invoice is very easy.

Otherwise, simply email the client manually, remind them of the unpaid invoice (including the outstanding amount and due date), and attach the invoice for their reference.

Contact the client

If step one has not been successful, reach out to the client. This can be via email, phone, social media, or any other contact method available to you. There’s a good chance they are not seeing your emails, either because they ended up in spam or their inbox is simply overflowing. Theoretically, your subject should be clear enough for them to notice that they need to make a payment.

In any case, try your luck via phone, SMS or WhatsApp if you’re not receiving replies via email. The next goal is to get the non-paying client to respond to you—in any way possible. Once they do, notify them about the outstanding payment, and ask them to pay it as soon as possible.

Stop ongoing work

If you’re working on a long-term project and the client owes you money, you should pause your service until the late payment is taken care of. Your cash flow is already affected by the outstanding invoice, but now you should also reduce any risks when it comes to doing more unpaid work.

It’s also a good idea to inform the client that you’ve paused your work until they pay your invoice. Once they do, you can resume the project.

Agree on a payment plan

If a client doesn’t pay because they are financially in trouble, it’s still in your interest to help them out in any way you can. And the easiest one is to set up a payment plan. You can agree to split up the payment into multiple installments spread out over an agreed upon period.

Make sure to have this agreement in writing, and don’t spread out the payment plan over more than six months. Ideally, ask the customer to make the first partial payment right away.

Take legal action

In rare cases, and if the outstanding amounts are considerable, it makes sense to take legal action against a client. This is especially true if the client is another company.

Before you do, though, do a cost analysis. Is it worth it hiring an attorney, or will the costs for hiring one outweigh the outstanding amount? Otherwise, it’s better to note down what has happened, and think about ways to avoid it in the future.

Getting involved with a small claims court is not a walk in the park, on the contrary. You need to file a complaint, prepare and present your case, and finally wait for a judgement. Unless the amount is in the thousands, it’s simply not worth the effort. Plus, in some states in the U.S., you cannot ask a lawyer to represent you. And I’m not even going into the fact that your client could be located overseas, which makes taking legal action even more complicated.

Use a collection agency

The alternative to taking legal action is to make use of a collection agency, who is usually able to recover amounts of up to 80% of what you’re owed, if we’re talking about B2B. The problem is that the industry average success rate has dropped over the past decade, hitting an average collection rate of only 20% compared to 30% before. This does, however, also include B2C debt, which is much harder to recover.

Another thing to keep in mind that the fees of a collection agency on the amount collected can be up to 25%. Assuming they recover 50% of $10,000 owed, you only receive $3,750. Is it better than nothing? Probably, but it’s up to you to make this decision. For larger outstanding payments, hiring a collection agency can be a good choice, especially if it’s clear that the client is hesitant to pay the invoice.

Summary

There are many reasons why clients don’t pay, but whatever they are, it’s in your interest to find a solution. With the above-mentioned steps to take when invoices remain unpaid, you have multiple ways of dealing with this unpleasant scenario.

If a client continues to pay their invoices late, consider to charge them late fees. You can also ask for payments upfront for certain services, especially those that are on the higher end. I also keep recommending in my blog posts to switch to recurring services that are billed automatically.

You can integrate your SPP client portal easily with Stripe or PayPal and stop worrying about past due invoices. If you’re not sure how to get started, read this post on how to integrate a payment gateway into your website.