One of the worst fears of an independent contractor is a client that is late on the payment schedule. Don’t panic – there are some steps that you can do to finally get paid.
Unfortunately, an unstable cash flow is a common struggle for independent workers. Freelance work has many advantages compared to regular, full-time employment, but it still offers less financial protection. In this article, you will learn what you should do faced with a situation where your client doesn’t pay. We hope it will help you solve your issues! Here are some things you can do.
Send them a kind reminder
First of all, keep calm and don’t jump the gun. Before you think of the worst scenario, try to send your client a gentle reminder and ask for the reason for his non-payment.
It’s more than likely that the reason for your delayed payment is not a malevolent attempt to avoid paying but a legitimate, understandable reason. Your client might be occupied with urgent family matters and has made the human mistake of losing the invoice in his email box, and the payment processing service failed. While in a perfect life, this should never happen, small hiccups can happen even to the best-organized companies.
If your focus contact answers, remember to be open to their reasons. Even if it turns out there is a more serious problem (for example, your client has an unexpected budgeting issue), most people are more than willing to look for a solution. While you should firmly stand your ground, consider how it may affect your future business relationship. If the client is trustworthy and you have reliably worked together for a long term, it might be worth staying open to discussion rather than burning a bridge.
If that doesn’t work in a timely manner, you’re still not getting a reply, or worse – your contact is blatantly refusing to pay the outstanding balance. The case will, unfortunately, be much more complicated. What can you do next?
If the issue persists, experts recommend starting with sending an updated invoice. It not only serves as a reminder but also eliminates excuses in which clients claim to have lost the original bill. You can go a step further and try to contact them via other sources. No answer? Try again, this time more firmly, adding their supervisors or the company’s accounting department in the email’s carbon copy. Make sure your message is clear and states your deadline for covering the unpaid invoice. If you’re working with the client on an ongoing basis, pause your remaining projects and issue an ultimatum.
Set a payment deadline
If you still haven’t been paid or offered any kind of solution, it’s time to start thinking about escalating the situation further. Before you do that, we recommend reaching out to the client once again with a letter of demand. When drafting it, inform the client that if the invoices remain past due, you will be forced to charge an additional late fee and seek legal action.
Your payment demand letter doesn’t need to be written by a lawyer, but we recommend researching templates provided by the government or freelancer associations in your country. As it may be later used as evidence in a legal course, it’s important that your letter of demand:
Uses formal, polite, and respectful language
It is addressed to the person who owns the business
Includes all relevant supporting documentation (e.g. your contract, the original invoice)
Clearly states the full amount in debt
Clearly states your further intent of escalating the action
It is sent through official postal services, requesting a signed proof of delivery.
Here, make sure to remember that disputing the situation in court should never be your first way of resolving the issue. It’s important to underline that while legal dispute resolution will most likely help you collect the remaining payment, it might bring negative consequences for your small business in the long run. Before you decide to pursue legal action, weigh up the financial costs, time, and efforts – especially if you’re a self-employed person dealing with a big business. Unfortunately, sometimes the cost of taking the dispute to court is bigger than the outcome, and it’s better to forget, grieve and never make the same mistake again.
It will help your claim if:
You gather all the necessary evidence (invoices, contracts, conversations with the client, proof that you have kept your side of the agreement, and copies of your efforts made towards an alternative dispute resolution)
You consult a lawyer with expertise in helping service businesses
You team up with other freelancers – if there are other independent contractors to who your client owes money, consider a collective claim.
The instance to which you should direct your claim depends on the law in your country of origin. We strongly recommend doing your research and consulting a lawyer. Usually, small businesses get directed to a small claims court, authorized to hear out civil cases between private litigants. Additionally, Business.com suggests it might be worth hiring a licensed collection agency that will recoup the debt.
Avoid the situation
Mistakes are here to make us smarter, so the most important thing you should do is implement ways that will protect you from this situation in the future. Is there a way you can guarantee that you will get paid on time?
Provide a clear and legally binding agreement beforehand, stating negotiated payment terms (a payment schedule or plan, underlining actions you will take in case your invoice isn’t paid on time)
Request an upfront deposit for each project
Charge late fees (or incentivize your clients with an early payment discount)
Never let your invoices pile up
Hire an online accountant to keep track of all activities in your accounts
Always do your research on each potential client before starting new business cooperation, and work only with reliable professionals.
Another easy way of making sure you always get paid on time is using freelancer-friendly services such as Useme, which offer you full protection of your work in exchange for a small commission. This way, your work is only transferred to the client after he completes the payment, and more importantly – your business is protected by a bigger entity.
We hope this article gave you some ideas on what can you do to prevent yourself from late payments and on actions to uptake in case your client doesn’t pay.