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.
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Tuesday, February 3, 2015
What to Do When Final Payment is Due and the Client Won't Pay
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