What to Do When Final Payment is Due and the Client Won't Pay Use these tips to avoid working for free.
By Deborah Mitchell Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
At least once a week, I think about the client who owes me $25,000 after skipping out on paying his final invoice. Two years ago, in January 2013, I found myself -- as a new entrepreneur -- trying to collect the balance due on a project we had completed during the previous holiday season. It was a huge social-media-outreach campaign for a client who had been recommended. We signed a contract and secured a 50 percent retainer before starting and then completed it on a tight deadline.
Once the job was done and all the final reports were submitted, we sent the final invoice for payment. That's when the client disappeared. We knew where to reach the client. We sent emails and left messages and even got several "point" people on the phone, but still no money. The contract clearly stated that payment was due immediately upon completion of the project, and the brand was now in breach of contract and past due.
Related: 3 Tips for Designing an Invoice That Gets You Paid Promptly
So how do you handle these kinds of situations?
Have a solid proposal and contract
Outline a proposal before you sign a contract. In the proposal, show a monthly status report for the project in addition to a payment schedule. This is a good way to keep all parties internally and externally motivated and on track with the process of the project.
Make sure you have a solid contract that is very specific, ensuring that there are late fee ramifications and legal fee clauses. Collect a retainer -- at least 50 percent up front before the start of the job -- and, most important, document the work thoroughly, just in case you have to go to court.
Get a lawyer
Hopefully, this will be a last resort. If you haven't gotten anywhere with collecting your payment, it's time to get legal assistance. Hire a lawyer who works on breach-of-contract cases. Of course, retaining a lawyer will cost you up front, but if you win, the client should cover it as outlined in the contract.
Send a certified letter, including the proposal, a copy of the original contract, and let them know that you are going to proceed with legal action. Send these items to the immediate contact, a company attorney if available, and in-house public relations professionals. A serious letter from an attorney threatening to go to court usually gets people to pay attention.
Go to court
Depending on the amount at stake, you have a few options. If the balance runs between $2,000 and $7,500, then small-claims court might be your way out. State laws vary, so you will want to check if this applies to your case, but it's usually the best way to get your money.
Related: Have a Client Who Is Not Paying? Sue.
If the amount is higher, you can either turn to arbitration, if there is such a clause in your contract, or take the longer, more arduous way of litigation. The question is, how much money can you afford to spend to collect your payment? It all comes down to the numbers, so do the math, set your budget, lawyer up and head to court.
Don't put them on social media blast
I know you might be tempted to conduct a public shaming, but don't. It's always better to take the high road in these cases. Remember, you have other clients who are watching how you do business, and you never want to make a bad impression. Keep it professional and classy.
Change your billing practices
Building a successful business has a lot to do with learning from your mistakes. The first time you are faced with a client who will not pay, you will feel frustrated, but it is up to you to make sure that it doesn't happen again. Instead of asking for a deposit and billing for the balance at the end of a contract, divide your fee into a payment calendar, and distribute your payments into two or four invoices. For each portion of work you provide, send an invoice. Once the invoice is paid, move forward with the work.
As for my deadbeat client, five months into being a business owner, we got burned when this client refused to pay up. The client continued to ignore our emails and phone calls for payment. The truth is, we didn't have the extra resources needed to hire a lawyer. By the time I hired one, I read that the company had filed for bankruptcy and left a long line of disgruntled contractors who were suing for monies owed.
For this entrepreneur, the unpaid past due payment of $25,000 was a hard and expensive business lesson to learn.
How do you handle it when a client refuses to pay an invoice when payment is due? Let us know in the comments section below.
Related: 5 Ways to Get Paid Faster
