Outstanding Invoices? What to Do When Customers Won’t Pay Their Bill

How to get customers to pay past due invoices

You can take the following steps when you’re struggling with a customer who won’t pay their bill:

1. Send a gentle reminder.

A friendly reminder that a customer’s bill is past due is the first step in collecting payment. Most of the time, a late payment was an honest mistake, and receiving that first follow-up is enough to make a client pay as soon as possible. 

Greg Waldorf, a lecturer at Stanford University and former CEO of invoicing app Invoice2go, acknowledged that the subject of money isn’t always easy to address, so you may want to ease into the topic.

“Use an opportunity to check in on a customer’s satisfaction for your services, and then discuss any approaching or past-due invoices,” Waldorf said.

2. Send an updated invoice.

In some cases, clients try to delay paying, claiming that they lost the bill or need to reconcile their records to find the correct payment amount, said Hunter Hoffmann, chief marketing officer at AmTrust Financial Services. If this is the case, Hoffmann advised sending an updated invoice right away – even if you know the customer has the original – to eliminate this excuse.

3. Ask why the client isn’t paying.

If your client still won’t pay, be open to hearing their reasons. Ben Giordano, owner and founder of FreshySites, suggested asking questions about their satisfaction with your work, their financial complexities and anything that might contribute to their refusal to pay.

“Once you know why they refuse to pay, you can work toward a resolution with the client/customer,” Giordano said. “Keep in mind that everyone is just a person, and rarely is someone actually out to hurt the other – most people are logical and willing to work toward a solution if you provide them with the opportunity to do so.”

4. Demand payment more firmly.

When a nonpaying client ignores your emails and calls, demand payment from them more firmly. Service businesses working with the client on an ongoing basis are in the best position to give an ultimatum, Hoffmann said.

“Set a specific deadline when service will be cut off, to light a fire under them,” Hoffmann said. “It’s amazing how quickly they can figure out how to pay when they realize how hard it will be to replace your service in a couple of days.”

5. Escalate the situation.

Waldorf advised requesting a timeline for payment and continuing to follow up until the customer pays. If necessary, resend your original contract, indicating that you will escalate the situation if invoices remain past due.

To show the customer “you mean business,” draft a demand-payment letter, a formal written letter that outlines the debt that is owed to you and states what the result will be if the debt is not paid by the designated due date.

6. Hire a factoring service.

If you’re strapped for cash and don’t know when a customer will pay, an invoice factoring service can help you get the money you need while you’re waiting. With a factoring service, you sell your accounts receivable to a company for a certain percentage of the accounts’ value (usually 70% to 90%). The service then advances you the money within a few days. Then, the factoring service collects your customers’ payments and sends the rest of the cash to you, minus the service fee. 

Factoring services are not collection agencies, though. They run a credit check on your customers before agreeing to purchase their invoices. If you use this service for multiple customers’ invoices, the service fees add up, and you may lose money in the long run.

7. Hire a debt collection service.

When all else fails, it might be time to hire a debt collection agency, which specializes in recovering payments that are typically more than 90 days past due. The service handles the task of following up with the customer, using tried-and-true tactics to get the individual to pay. 

Editor’s note: Looking for a collection agency for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

How to collect overdue payments

Collecting overdue payments means dealing with the problem head-on, Waldorf said. But being straightforward doesn’t have to mean being aggressive. If a client or customer hasn’t paid a bill on time, here’s how to ensure you get paid while maintaining a good relationship with the customer.

1. Discuss all costs and payment terms before you begin a project.

Putting everything on the table right away not only sets payment expectations for your client but also establishes the trust necessary for a strong, positive customer relationship, Waldorf said. Before you dive into a project, ensure that your client is fully aware of the projected costs and that you take time to answer any questions upfront.

“Having this clarity from the beginning will help strengthen customers’ trust and commitment to paying the full amount,” Waldorf said. “If anything changes along the way, alert your customers in real time so there aren’t any surprises.”

2. Bill for work upfront.

If you think it’s too risky to use an invoice system, ask for full payment before you start any work. Mat O’Flynn, owner of Drip Email Templates, said the only way to mitigate nonpayment is to bill for the work upfront.

Some customers may be wary of paying before receiving your work. To provide some reassurance, encourage them to read testimonials or reach out to previous customers.

“If you have a spotless track record and take care of clients consistently over time, you will earn more and more right to take payment prior to work,” Giordano said. “When someone questions our policy, I tell them to call any of our clients, any day, anytime, and ask about our reputation and integrity as an organization.”

You can also require a deposit before starting any work or turn down customers who don’t seem like a good fit. This is often evident from the start; if there are issues with down payments, there will likely be problems with future invoices.

“If a client refuses to pay a deposit, then I immediately know not to work with that client, even if they beg you to later on,” O’Flynn said.

3. Send invoices right away.

With so many tasks on your plate as a small business owner, it can be easy to lose track of a customer’s invoice. You may even forget to send one in the first place, and going after a client for payment on a bill you never sent hurts your reputation. Waldorf advised sending your invoice as soon as a job is completed – and staying on top of it until it’s closed out – to avoid falling behind.

4. Be persistent with late customers.

If a customer won’t answer electronic correspondences about their bill, call them – and keep calling regularly until they pay.

“Don’t be aggressive; just don’t stop asking,” Hoffmann said. “Emphasize that you want to settle up the accounts so you can both focus on more important things. It will become much easier for them to pay you than to keep dodging your calls and making excuses.”

5. Charge late fees.

No one wants to pay a late fee, and having these charges in place upfront can help deter customers from paying their invoices late. Set up a system that is backed by a policy or terms of service. For instance, if you don’t pay within five days, you get a warning; 10 days, you get a late fee; 20 days, you lose service, Giordano suggested.

6. Set up a payment plan.

If a customer is having cash flow issues and they simply can’t afford to pay your invoice in full upfront, it can be helpful to set up a payment plan to ensure you get paid. As a part of the payment plan, negotiate an amount that the customer can afford, specifying over what period of time payments will be made.

How to take legal action for nonpayment

When debt is significant enough, taking clients to small claims court or hiring an attorney may be viable options for getting paid.

“We do a very honest cost analysis when considering a lawsuit,” Giordano said. “Is the total cost (financial, emotional, time, energy, etc.) greater than the amount to be recovered? If it’s more work to recover the $500 than it’s worth, just learn the lesson, put in a system so it doesn’t happen again, and move on.”

However, if that client owes you a large sum of money and refuses to pay you or a collection agency based on the terms of your contract or invoice, a lawsuit may be necessary. If you decide to pursue legal action, consult an attorney to determine how to proceed.

Taking a client to small claims court is never a fun process, and it requires a lot of work, such as filing a complaint, preparing your case, presenting your case and collecting a judgment. Thus, the amount of money you’d be suing for needs to be enough to be worth your time and meet your state’s requirements. (Typically, the minimum is $2,000.) 

“Small claims court is particularly well suited to collecting small debts because it’s inexpensive and fairly quick,” said freelance legal writer Stephen Fishman. “In fact, debt collection cases are by far the most common type of cases heard in small claims court. And you don’t need a lawyer to bring your case. Indeed, a few states – including California and Michigan – don’t allow anyone to be represented by a lawyer in small claims court.” 

Be patient with nonpaying customers, but know when to act

It’s natural to feel frustrated when customers don’t pay, but often, they have just forgotten. Simply reminding these customers or working with them to make payment easier can often get you your money. After enough attempts to obtain payment, though, you may need to send the customer’s bill to collections, hire a factoring service or take legal action. Read this guide whenever a customer is refusing to pay, and you’ll know exactly what you’ll need to do.

Marisa Sanfilippo contributed to the reporting and writing in this article. Source interviews were conducted for a previous version of this article.