What Happens When Clients Don’t Pay Their Invoices?

What Happens When Clients Don’t Pay Their Invoices?

Written by Veronica Ott
Fact-checked by Caitlin Wood
Last Updated June 11, 2021

If you own a business, you’ve probably encountered a client who doesn’t want to pay or resists payment. If you haven’t encountered this yet, consider yourself lucky! There are several reasons why a customer might not be paying your invoice, some of them are surprisingly understandable. Once you pinpoint the reason why you can plan your next move to collect payment. 

To learn more about why clients might not be paying, what you can do to collect invoices and how to minimize the risk of no payment, continue reading below. 

Why Isn’t Your Client Paying? 

There are various reasons why clients might not pay and not all of them are bad reasons. Let’s take a look at potential reasons why clients might not pay an invoice below. 

  • Business Issues. A common reason why businesses or individuals don’t pay is that they have cash flow issues or don’t have the resources to manage the project at the moment. 
  • Busy Approver. If you work with a large corporation, the person who’s responsible for approving your invoice might be busy and hasn’t had time to approve your work. To make matters worse, these types of corporations often have long payment cycles which might cause further payment delays. 
  • Dissatisfied Customer. Some clients don’t pay because they’re not satisfied with the product or service you provided. Don’t be hard on yourself – you can’t please everyone. Although, they are still required to pay you if you delivered a product or service as requested.
  • Plain Old Delinquent. There are nasty clients out there that simply cheat the system and are serially delinquent. When it comes time to pay, they are nowhere to be found. 

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What To Do When Your Client Isn’t Paying Their Invoices

Fortunately, if you’re trying to collect payment on an invoice, there are various things you can do. Sometimes the issue is as simple as your invoice slipped through the cracks. Other times, it can be more serious and require further action. 

Send A Follow Up

When your invoice officially becomes overdue, send a follow-up note to your contact asking for an update on payment. At this point, you should communicate in a friendly and approachable manner to encourage a response. People get busy, things go missing, the reason why your invoice wasn’t paid could be very simple.

Seek Legal Advice

If you’ve sent various follow-ups and received back vague or no responses, your next step is to seek legal advice. Keep in mind that your invoice should be worth the hassle of hiring a lawyer. If the cost of a lawyer is greater than what you’re going to collect on the invoice, you’re better off taking other courses of action. 

If you decide that the invoice is substantial enough to hire a lawyer, you can request that they prepare a demand letter. Sometimes a nudge from a lawyer is enough to get the client to pay. The lawyer might suggest other courses of action too, depending on the circumstances. 

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Hire A Collection Agency

A collection agency will attempt to collect the debt for you for a fee, usually a percentage of the collected debts. Often, if the debt is not collected, you don’t pay a fee. You might be frustrated by the fee, but think of it as some money is better than no money. 

Do some research on collection agencies before picking one, the same way you’d do research before hiring an accountant or lawyer. A good collection agency makes it their duty to collect debt without sacrificing the relationship with the debtor. 

Invoice Factoring

Factoring companies are in the business of improving other business’s cash flow by purchasing outstanding accounts receivables. While you wait for your debt to be collected, they’ll pay you a portion of the sold invoice amount. Not only will your cash flow improve, but the burden of collecting debt will also be taken off your shoulders. Keep in mind that if the factoring company doesn’t collect the debt, you will owe that money back to them. 

Write It Off (Bad Debt)

If you’ve tried everything, your last resort is to write off the invoice as bad debt. Unfortunately, some debt is never collectable and must be written off. 

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Ways To Avoid Client Non-Payments

If you’ve had the unfortunate experience of being unable to collect debt on time or at all, there are several things you can do to prevent it from happening again in the future. Below are several tactics you can use. 

  • Late Fees. Late fees are designed to motivate the client to pay on time. Once an invoice is overdue, send an updated invoice with the late fee tacked on. Keep in mind that your original invoice should state that late fees are applicable on overdue invoices so there is no confusion. 
  • Upfront Fees. Charging all or part of your fee upfront will ensure that you collect some money for the work you perform. There is a risk that the latter half of the money might not be collected, but something is better than nothing. 
  • Create A Contract. Whether you’re working with a new business or a close friend, contracts are a great way to ensure you’re on the same page before starting any work. Contracts should address payment plans, payment methods, scopes of work, deadlines, terms, and late payment policies.

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Business Relationships Are A Two-Way Street

At the end of the day, any business relationship is a two-way street. One entity provides something to the other entity in exchange for something else. With invoices, that something else is payment. If you’re not getting paid, don’t feel bad about escalating the situation or pushing back. You deserve to get paid for the work that you do.

Rating of 4/5 based on 8 votes.

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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