Running a business can be tough. Trying to get the clients to make payments is hard enough. When your clients or customers won’t pay, things are even worse. There are lots of options available to you in collecting from customers that won’t pay, but a good idea is to start out by being proactive. Being organized can save you a lot of hassle down the road and may prevent problems from ever arising in the first place. If problems do arise at that point, at least you have documentation proving that payment is due. This will increase the chances that you can actually collect on what is due to you, including potentially any additional damages caused by not receiving the funds in a timely manner. Being organized and collecting from customers that won’t pay will both be discussed in this article.

Preventing Payment Problems

There are lots of ways you can prevent payment issues from ever happening in the first place.

  • BILL EARLY: To start, always invoice your customers plenty of time before payment is due. If you only invoice your customers a day or two before payment is due, it is possible the payment may have been forgotten and funds may have been allocated elsewhere.
  • MARK YOUR BILLS: Additionally, mark any outgoing mail, including email, accordingly. Informing your customers right on the envelope that an invoice is enclosed will increase the odds that the mail will not be discarded and will be kept in a safe place. Consider a red ”PAST DUE” stamp that glares at anyone who has let their bill slip into default.
  • SEND BILLS VIA MULTIPLE MEANS: sending bills via the US Mail simply isn’t enough these days. Emailed versions of invoices that include payment instructions and a contact email for any questions is a great way to ensure the bill is routed to the right decision makers in an expedited fashion.
  • GET A DEPOSIT: A good option for many business owners is billing in advance of rendering services. If services are always billed in advance, the business owner has the upper hand, as they are not expected to render services until they have been paid. The customer knows they must pay their bills to continue receiving services.
  • OFFER DISCOUNT FOR EARLY PAY: Some businesses offer a 3-10% discount for speedy payments. Depending on the overhead of the service or good, this can be a useful tool to keep cash flow lively.
  • CREDIT APPLICATION: Another option is to credit check your customers, particularly if billing in advance is not possible. Credit checks will help you to screen out any clients that may not be serious about paying you for the services they expect you to render. There are many versions of credit applications online, some with provisions and questions that are helpful, and many that simply aren’t catching the key issues.
  • PERSONAL GUARANTEE: Personal Guarantees are an incredibly powerful method of ensuring payment. Smaller and newer entities with low or no credit history are often forced to rely on their principal’s credit, and this is a useful tool to ensure that your payment is a priority for the business owner. Remember that a personal guarantee is only as useful as the strength of the guarantor, so seeing a copy of the credit report of the guarantor is essential to verify you have a valuable assurance.
  • SECURED LIENS: In some circumstances, a secured interest that is recordable with the county recorder, or permission to engage in a UCC filing with the secretary of state may assist to place the monies you are owed in front of a long line.
  • ATTORNEY FEES: The price of litigation is a hearty deterrent from breaching an agreement to pay. A simple provision for the prevailing party to be entitled to attorney fees is key to shifting the onus on the party acting in bad faith to change their habits or pay for both side’s legal fees.
  • STOP / SLOW PROVISION OF SERVICES OR GOODS: While you don’t want to lose a valuable customer to a competitor, a nonpaying customer is charity, not a customer. Consider a slow-down of goods and services provided until their credit is re-established.
  • PAYMENT PLANS: ensure that your agreement calls for monthly interest that isn’t usurious so it is an enforceable deterrent to late payments, have an action plan for how the client is going to pay off their balance in their stronger fiscal cycle
  • REPUTATION: ensure your business relationships know that you have the keys to their reputation and their livelihood. If they fail to pay, your company should have standardized reporting mechanisms to credit agencies and reputation groups such as Hoovers, Yelp, etc, depending on the trade network you are in.
  • AUTOMATIC PAYMENTS: Automatic payments on recurring credit card lines are helpful, as long as this is done in writing and the agreement is in writing.
  • ONLINE PAYMENTS: Website payment tools can ensure that funds can be received 24 hours a day.

There are many cases where billing in advance may not be possible and/or proper organization still does not prevent payment issues. If there are still problems, there are ways to get your customers to pay.

What to Do Before Consulting With an Attorney

No MoneyFirst and foremost, offer the customer installments to pay if you can. Demanding the full balance without negotiation may scare some individuals off. If you reach out and show them that you are willing to work with them, you increase the possibility of them paying without any additional issues arising.

If the offer is neglected or ignored after more than one attempt, consider the amount and determine if it is possible to file in small claims court. If the client is nearby and the amount is small, this is a great option as it doesn’t require hiring an attorney or collection agency.

Hiring a collection agency may be a useful option depending on the amount owed and the fees charged by the agency in question. It’s always a good idea to check the Better Business Bureau (BBB) for information on the collection agency you plan to use. The collection agency may report them to credit reporting agencies, increasing the odds the individual will pay the debt to clear their credit.

If all these methods have failed and/or the amount is great enough, retaining an attorney may be the best option. If you are uncertain what your best option is, at least consulting with an attorney is a good step to consider. An attorney may be able to help you get organized or prepared regardless of whether you retain them for the entirety of the collection or not. In some cases, it really won’t be worthwhile to hire an attorney based on the amount that you are trying to collect. However, at least consulting with an attorney will help you determine what your options are, get organized, and improve your chances of successfully collecting on the debt. For larger amounts with reasonable documentation of the amount owed and services rendered, hiring an attorney is the best option in securing the best chance of getting a favorable outcome in your case.

If you’re looking for a business litigation lawyer to discuss a case involving collection from customers that will not pay, WB Law Group is happy to assist you in a consultation to determine your options and the ability to be successful in your case.

Need an Attorney for Collecting From Customers That Won’t Pay?

WB Law Group is a reputable business litigation firm with experience in matters involving California business litigation, including matters involving collection. If you feel you need legal representation, we are happy to review your case and provide consultation.

For questions, or to schedule a consultation, contact us today at 559.­431.4888 (Fresno) or 619.399.7700 (San Diego).