When Customers Don’t Pay


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You’ve started (or finished) a job but the customer or client refuses (or is unable) to pay. What recourse do you have, besides stopping work or refusing to work with the client again? The terms of your contract largely determine the options that are available to collect payment due. .

If you encounter difficulties in collecting payment while a job is in progress, seek legal advice immediately – and especially before you stop work. If you do stop work, without seeking legal advice, you may be setting yourself up for financial or legal liability.

Customers Who Cannot Pay (Now)

For clients facing cash flow problems try working out a deal for a partial payment now and the balance (perhaps with interest) when the client’s cash flow problem has been resolved. Get the agreement in writing and send updated invoices until the entire balance is paid. Clients facing financial hardship may be able to manage installment payments.

If a client is truly strapped, place that particular account on the back burner while continuing to send invoices. Doing so demonstrates that you made a diligent effort to collect what is owed to you – in case you’re forced to take drastic measures (described below) at a later date.

If it’s unlikely that the client will ever be able to pay in full, consider offering a one-time settlement for a partial payment. Be aware that once you accept a partial settlement, you will be barred from making further collection attempts, regardless of the customer’s future circumstances. You should also get the agreement in writing. It is also highly advisable to obtain the services of an attorney to draw up the paperwork.

Customers Who Refuse to Pay (Ever)

Unfortunately, some clients are determined never to make good on their debts to you or to any other creditor. In such cases the key is to make the delinquent client understand that you won’t go away. Continue to send demand letters and invoices on a regular basis. Phone calls to remind delinquent clients of payment owed are also legitimate. Continued collection efforts demonstrate diligent attempts to collect a debt.

As a Last Resort

Collections agencies generally pay creditors about 50 percent of what they are able to collect from delinquent clients and customers. If you go that route, check out the collections agency to ensure that it is licensed and that it adheres to fair collection practices (described below). Your state consumer protection agency, the Better Business Bureau or the regional office of the Federal Trade Commission (FTC) are good places to check.

You can also file a complaint against the client in small claims court. If you prevail, you’ll receive a judgment that can give you leverage in collecting what is owed to you. However, it’s your responsibility to carry out the judgment – including retaining the services of a sheriff or attorney to execute executing wage garnishments, bank account seizures or other measures designed to collect the money you’re owed.

In some cases, contractors can attach a lien against the delinquent client’s property. Once the lien is attached, the creditor may be able to foreclose on the lien and force the sale of the attached property. However, depending on the client’s circumstances and the relevant jurisdiction, there may be little or nothing left to collect after mortgage holders stake their claims and the client invokes homestead and other exemptions. An attorney can determine if a lien is a viable alternative to collect a delinquent debt.

Resist the Temptation

Resist the temptation to post disparaging notices about delinquent client on social media or other public forums. Engaging in so-called public shaming may backfire – making customers who would otherwise pay less likely to do so and, ironically, may lead to adverse legal action against YOU. Likewise, abusive collection tactics (whether directly or through a collection agency) are prohibited by law. The Fair Debt Collections Practices Act (FDCPA).

Specifically the FDCPA prohibits collection calls outside the hours of 8:00 a.m. to 9:00 p.m. – variations apply for delinquent customers who work nights. You (or your collection agency) are also prohibited from using abusive language or making false threats such as the possibility of jail time. Written demands to stop all telephone contact must be honored – except for informing the delinquent customer or client that collection attempts have stopped or that you are planning to file a lawsuit.

Prevent Future Problems

The best way to deal with collection problems is to prevent them from happening. Insist on receiving a partial payment up front when dealing with new clients or with large contracts with any clients. Finally, incorporate installment payments to be maid at various stages of the contract so that you don’t complete too much work without being paid.

Disclaimer: This article describes general options for dealing with delinquent clients or customers. It is not intended to provide legal or financial advice. Please consult with an attorney or financial advisor with specific questions concerning your particular circumstances.

Audrey Henderson
Latest posts by Audrey Henderson (see all)

Posted In: Customer Service, Management, Money

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