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What To Do When a Client Doesn’t Pay for a Service

kase
Jun 24 2024

KASE Insurance understands the importance of protecting your business. Getting paid for services rendered is essential for smooth operations and financial stability. However, many service businesses face the challenge of clients who delay or outright neglect to pay for services rendered. 

In this blog post, we’ll tell you what to do when a client doesn't pay, highlighting proactive strategies to minimize the accounts receivable risks altogether. 

Getting a Client to Pay For a Service

Prevention

The best defence is a good offence. First and foremost, outline the following in a written contract: 

  • Scope of Services: Clearly define the services you’ll provide, such as website development, personal loans, and content creation.
  • Payment Terms and Accepted Payment Methods: Specify the payment method and schedule, whether a fixed upfront fee, monthly installments, or a combination of both.
  • Late Fees: Outlining late fees encourages timely payments and discourages delays 

Discussing these details with your client early on establishes clear expectations and helps avoid misunderstandings later.

Early Intervention

Upon noticing a missed payment, prioritize prompt and professional communication. A friendly phone call or email reminding the client about the outstanding invoice is enough to jog their memory and get the payment moving.

The tone of your payment reminder emails is key. While firm, maintain a professional and courteous demeanour. This approach encourages a positive response and opens the door for a quick resolution.

A person in an office writing an email

Image source: Canva

Follow Up Firmly 

After the initial phone call or email about overdue payments, send a formal follow-up email reiterating the payment due date, the amount owed, and an applicable late fee. Include a copy of the invoice for reference.

While maintaining a professional tone, emphasize the importance of settling the unpaid invoices. Set a firm deadline for payment, stating that further action may be taken if the invoice remains unpaid.

Formal Communication with a Demand Letter

If the client disregards your attempts at communication, a formal debt collection letter becomes necessary. This document outlines the overdue payment, potential consequences for non-payment (such as legal action), and a clear deadline for payment upfront. Ensure the language is clear and concise, and leaves no room for misinterpretation.

A final demand letter should be sent via certified mail to ensure the client receives it. It should include the following details:

  • The final due date
  • Your business information
  • Customer information 
  • A clear description of the services rendered and the outstanding amount
  • The consequences of non-payment, which could involve reporting the delinquency to credit bureaus or collection agencies

Consider Legal Options

For small amounts, filing a lawsuit in small claims court might be an option. However, legal recourse can be time-consuming and expensive. Consider the cost of filing fees, potential court appearances, and the time commitment involved before pursuing this route.

Alternative dispute resolution (ADR) may be a faster and less expensive option. ADR involves a neutral third party mediating between you and the client to reach an agreement. This can be a more efficient way to resolve the issue, especially for smaller claims.

Person handing another person a contract

Image source: Canva

How to Avoid Non-Payment 

Late payments can cause cash flow issues and disrupt your business operations. Thankfully, you can employ proactive strategies to minimize the risk of a customer not paying invoice. We go through some options below. 

  • Get Trade Credit Insurance: Instead of contacting a debt collection agency, consider trade credit insurance a financial safety net. This insurance protects your business from financial losses due to an unpaid invoice by customers, even in cases of insolvency or political instability. Consider award-winning brokers like KASE Insurance and ask questions crucial to debt collection like how are claims handled and if you can make changes.
  • Screen Clients: Before entering into agreements, research potential clients' creditworthiness to assess their financial stability and payment history. Use online resources, business credit reports, and references to get a picture of their finances.
  • Establish Payment Terms: Set clear and concise payment terms with a shorter payment plan for new clients or larger projects. This reduces the amount of outstanding debt at any given time. You can offer discounts for early payments to incentivize promptness.
  • Require Deposits or Milestone Payments: For high-value projects consider immediate payment or milestone payments. A deposit upfront demonstrates the client's seriousness and helps cover initial costs. Milestone payments tied to the completion of specific project phases ensure you receive partial payment throughout the project, mitigating the risk of a large, outstanding final invoice.
  • Build Trust and Positive Relationships with Clients: Having open communications, setting clear expectations, and delivering high-quality work foster trust and a sense of partnership. Clients who value your services and expertise are more likely to prioritize timely payments.

Ensuring timely payments is crucial for any business, and the strategies outlined above can significantly reduce the risk of non-payment. However, unforeseen circumstances like client insolvency or political instability can still disrupt your cash flow.

Get Protected With a KASE Trade Credit Policy

This is where KASE Insurance's expertise in trade credit insurance becomes invaluable. Trade credit insurance acts as a financial safety net, protecting your business from losses due to non-payment, even in unexpected situations. It safeguards your business by reimbursing you for insured invoice amounts in cases of client insolvency or inability to pay due to political risks. 

With trade credit insurance, you can focus on core business activities with greater confidence, take on new clients, and expand your reach without the worry of bad debt crippling your cash flow.

By partnering with KASE Insurance for trade credit insurance solutions, you gain financial security and a buffer against unforeseen challenges—no more wondering how to collect money from clients who won't pay.

Contact KASE Insurance today to discuss how trade credit insurance can safeguard your business and ensure a steady cash flow.

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