Customers are a crucial part of any business, and in the main, most entrepreneurs have no big problems with their clients. But what happens when a customer refuses to pay a bill which is due? What steps can you take to get the money you’re owed while still retaining the dignity of your business?

Within some industries, avoiding payment is very difficult. In cases where payment is due at the point of the transaction, failing to pay is seen as a criminal offence almost immediately. Imagine a customer intentionally not paying for a bag full of shopping in the supermarket – he/she would be instantly charged with theft. Likewise, ignoring the bill in a restaurant and leaving the premises would result in the offence known as ‘making off without payment’.

However, many business which offer services will send their clients invoices at the end of each month. If the customer is required to pay in advance, problems of non-payment can often be avoided. The services will not be carried out until the bill has been paid upfront, therefore the client never has any outstanding bills for work already completed.

how to ask client for payment

So what happens if a customer doesn’t pay?

Dealing with a customer who won’t pay their invoices can be difficult. There are several steps that you can take, depending on how much money is owed, how much paperwork you have and the reasons the customer is avoiding making payment.

Communicate with your client

It’s important to first contact the client yourself to ask why they are not paying the bill. If the payment is overdue, you should send them a reminder to let them know. In some cases, the client has genuinely forgotten about the outstanding invoice, and accusing them of intentionally avoiding the payment could damage customer rapport.

Some businesses like to send 2-3 reminders before taking the case further. If it appears that your first reminder has not been received or is being ignored, attempt to contact the customer via a different method. This could be calling them on the phone or sending a paper letter to their home or business address. It would also be advisable to send letters signed for. That way you know that the customer has received your letter and you can keep proof of that if they continue to ignore you.

You should mention in the second reminder that further action will be taken if they do not settle the amount owed within a certain time period (normally 7-14 days).

Take legal action

If the invoice has still not been paid after written warnings and an appropriate length of time, you can attempt to recover the money by making a court claim. In the UK, this was previously known as going to the ‘small claims court’, and is done through your local county court. This is the best option if the amount owed is less than £750.

If you don’t feel you want to take the case to court, you can invite your client for mediation. This works best if the customer has a specific problem or reason for not wanting to pay the invoice. Your customer may be arguing that the work provided wasn’t sufficient, or perhaps he/she believes that the invoice is incorrect.

Mediation is a process whereby an objective person (solicitor or lawyer) helps the two parties to resolve the issue. In order for this to work as efficiently as possible, you should gather all the paperwork which relates to the customer’s case and take it to the mediation sessions.

However, if the problem does not seem to have resolved itself somewhat after 1-2 mediation sessions, you should proceed with taking the case to court.

If you are owed more than £750, you can issue a statutory demand to the individual or company which owes you the money. This means that a court hearing will be arranged (normally with 10 days) to deal with your case.

While most customers will take heed to statutory demands, there are steps you can take if the client ignores this demand for more than 21 days. You can either;

1.

Start bankruptcy proceedings if you are owed more than £5,000 by an individual or company

2.

Start the process to ‘wind up’ a company if you are owed more than £750 (meaning the company could be forced into liquidation)

If you’d prefer to stay out of court, you can contact a debt recovery agency and ask them to work on your behalf. There will either be a fixed fee for the work they carry out, or they will take a cut of any money which they recover from the client on your behalf. This option means that you can continue running your business without using your valuable time trying to recover the debt personally.

What if you don’t have a contract?

You should never start work for anybody without having a contract in place, particularly if there is a large amount of money at stake. The lack of a contract, however, doesn’t necessarily mean that you can’t make a claim. If you can prove that you have carried out work which hasn’t yet been paid for, you could still have a strong case to present.

You should keep a record of all emails and other interaction between your business and the client. Don’t forget to also keep copies of any reminders you have sent and/or statutory demands.

Taking the necessary precautions

When running a business, it’s important to stay organised and make it as difficult as possible for clients to avoid paying you for work. No matter how nice somebody may seem, you should never assume that they will pay you what is owed.

You should hire a solicitor to draw up a generic contract for your clients. This should outline your terms and conditions, and you should retain a signed copy before starting any work.

As well as keeping the signed contract, take the time to get a copy of the invoice as well as any communication between you and the client. If most of this is done via email, it will be easy to find the documentation when you need it; however, if you are sending and receiving paper letters, you should keep them safe in a separate folder.

Finally, ask your clients to pay upfront for the work or as soon as the work is complete. While not all clients will be happy to do this, it certainly prevents customers from trying to avoid payment. If there is a contract in place, customers should feel that there is enough security for them to pay beforehand without the risk of losing their cash. Whether it’s only half up front or just for materials at least you get something before you start. Once you’ve finished the Job while you can straight ask for payment, having a card reader available will make it harder for them to refuse.

The most important thing is to not let it wind you up. When a customer won’t pay it’s not just the money we look at but it’s the lack of respect and it becomes more about principle. Sometimes if it’s for a small amount it just might not be worth your time and it’s better to just forget it. Hopefully Karma is real.