Here's The Best Way To Deal With A Non-Paying Client

Photo culled from Therichardjames.com

Preventing non-payments
Chasing a non-paying customer is often a messy process, so it's best to avoid the issue altogether by taking the following precautions.

1. Research your client.
If you've never worked with a client before, take the time to do research and find out who you're dealing with. Google their name, ask your contacts if they know anything about your new prospect, and see if there are any complaints against them on sites like the Better Business Bureau .

"Most non-payments can be prevented or severely minimized by screening the customers in advance," said Jocelyn R. Nager, president of Frank, Frank, Goldstein & Nager , a professional legal corporation. "Thanks to all information available on the internet, especially the court records, notice of liens and more, most often you can run a risk assessment on your own … and the possibility of non-payment should be reflective of your tolerance for risk."

2. Have a contract.
No matter if it's your best friend or one of the most respected business leaders in your industry, always have a written contract in place. The contract should address these legal concerns:

• Payment schedule: e.g., 40 percent deposit, 40 percent milestone payment and 20 percent on completion
• Terms: e.g., payment either 30, 60 or 90 days after the invoice is sent
• Preferred payment method: e.g., checks, credit card or PayPal
• Scope: the exact work you are expected to complete
• Deadline: expected completion date
• Late payment policy: amount charged if invoice is not paid on time

It's essential to get all details in writing so you don't face issues down the road. For instance, if your client is aware they owe fees for overdue expenses, they'll be less likely to flake – and if they do, they'll be forced to pay interest. But if you fail to set up a contract, nothing is guaranteed.

"Often when assisting clients who are being charged interest, late fees or legal fees, I will ask the company for anything in writing and signed by my client that permits them to do so," said Thomas J. Simeone, trial attorney and managing partner at Simeone & Miller LLP . "When they cannot do so, I explain that interest and fees are not part of the contract and therefore are not allowed."

Don't set yourself up for problems that can be easily avoided. You can find service contracts for free and online. Here's one from LawDepot .

3. Ask for a deposit.
If you ask for a portion of the payment upfront, you'll absorb some of the hit. Asking for a deposit or retainer is common for freelancers when negotiating with clients and will help cover the expenses or time that you already put into a project.

According to Tina Willis, owner of Tina Willis Law , the amount you should ask for depends largely on the industry. If workers in your position do not typically charge retainers, consider installment fees, which are paid as you complete certain parts of the job.

"That way, you are less likely to do way too much work before getting paid, or realizing that you are never going to be paid," Willis said.

Approaching non-paying clients
Sometimes, no matter what you do to prevent the issue, you're still left empty-handed. If you've taken all of the precautions and a client still hasn't paid the invoice, you'll need to act fast. Here's how to approach the situation.

1. Weigh your options.
Ask yourself if chasing down the client is really worth it. If the payment was only a small percentage of your yearly income, it may be better to let it go and write off the client for future business. You could end up spending more money and energy than what the invoice is worth.

"Best-case scenario, if you have a winnable case, and the defendant has the money to pay and doesn't declare bankruptcy, you usually will still have to pay your own attorney's fees to collect," said Willis. "And those can run in the tens or even hundreds of thousands, depending on the complexity of the case."

2. Follow up.
Don't hesitate to send out an email if the invoice has not been paid by the agreed-upon date. There's always a possibility that the invoice was lost or misplaced. Maybe the client was on vacation or had a family emergency. You shouldn't instantly assume that the client is a deadbeat because they didn't pay on time.

Send them a friendly yet firm email reminding them that the invoice is past due and you'd like to resolve the issue as soon as possible. Also ask if they have any concerns with the product or service that you provided, or if they need assistance with the payment process.

3. Talk to a lawyer.
When your client is either resisting or ignoring your requests, and you still think the unpaid invoice is worth the trouble, you should involve a third party. But don't ask a friend or look online for help; meet with an actual attorney who will suggest which legal courses of action you can take against the customer.

According to Willis, once you've tried all else, it's best to hire a lawyer to write a demand letter.

"Many businesses and individuals do not understand the legal obstacles involved in collections," she said. "So, if they are a debtor, and your lawyer contacts them, many will just pay without analyzing further."

4. Hire a collection agency.
You could also hire an agency to collect the debt for you. You can find a reputable collection agency like you would with other professionals, such as accountants or lawyers. Ask your network if they know of any collection agencies, or read online reviews to select one for yourself. If that doesn't work, then check out member listings for the Commercial Collection Agency Association or BBB-certified collection agencies .