7 Steps to Take When a Customer Refuses to Pay for Work Done
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As a home service business owner, you rely on your clients to pay you on time so you can keep things running smoothly. But what happens when a payment due date goes by, and your customer still hasn’t paid you? Even though you completed the work detailed in your contract.
The financial strain from an unpaid invoice can disrupt your cash flow, making it harder to purchase materials for your next job, pay employees, and cover other essential expenses.
In this resource, we’ll walk you through what to do when a client refuses to pay for your services.
Here’s how to collect money from clients who don’t pay:
1. Get in touch with non-paying clients
The very first thing that you should do when a client misses a payment is to get in touch. There are many legitimate reasons why a customer could forget to pay an invoice, such as:
- Losing or failing to receive the initial invoice
- Personal issues, like a family emergency
- Being away for work or travel
- An incorrect email address or billing address
Often, clients don’t miss payment due dates on purpose. By reaching out to them, you can give them a polite and gentle reminder to pay without going overboard.
Start by reaching out through the original method of communication you used while on the job. Like phone calls, texts, or emails. If you don’t hear back, try any other contact information you have on file.
Is the client in an unexpected situation that makes it hard for them to pay their invoice in full? Consider working out a payment plan together. It’s better to get paid in installments than not at all. And your client will appreciate your understanding and flexibility.
READ MORE: How to offer financing to customers
2. Resend your invoice
As soon as you realize payment is past due, resend the invoice. Invoices sent by mail or left on the doorstep are easy to lose. Even emailed invoices can be accidentally deleted or wind up in the Spam folder.
If possible, avoid resending it by mail. People are more likely to receive (and not lose) digital invoices.
Emailing a PDF is one option. Or try texting the invoice straight to their mobile device.
Hopefully, a simple reminder will be all it takes to either encourage your client to pay. Or to start a conversation about how to move forward.
Pro tip: If you use invoicing software made for home service businesses, you can track invoice statuses to see when an invoice was sent and if it’s still awaiting payment.
3. Offer a compromise
When faced with a customer refusing to pay for work done, it may be worth offering a compromise to resolve the issue amicably. Here are some strategies:
Discuss possible payment plans or schedules
Open a dialogue with the client to understand their financial situation. Propose a payment schedule that could make it easier for them to pay off the outstanding invoice. This approach shows flexibility and willingness to work with the client, which may lead to a resolution.
Offer a discount for immediate payment
In some cases, offering a small discount can incentivize the client to settle the unpaid invoice promptly. For instance, offering a 5% reduction if they pay within a week can be more beneficial than engaging in prolonged collection efforts.
Highlight the benefits of resolving amicably
Emphasize to the client that coming to a mutual agreement can avoid the need for further actions. Nobody really wants to have to hire a debt collection agency or add late payment fees. This can save both you and the client time and money.
4. Use structured payment reminders
It can be hard to get the messaging right, especially when you’re frustrated and don’t know what to say. Instead of winging it and sending out a message that you may regret, use payment reminder templates.
Keep copies of all communication you have with a client before, during, and after a job in case you need to use them in the future.
Jobber automatically sends a customized email or text follow-up to customers, reminding them to pay their outstanding invoice.
5. Escalate the situation
If your attempts to communicate and offer compromises fail, it may be necessary to escalate the situation. Here’s what to do:
Outline the consequences of continued non-payment
Clearly communicate the potential repercussions of not settling the outstanding invoice. This can include mentioning the possibility of late fees, legal action, or the involvement of a debt collection agency.
Send a final demand letter
Before pursuing legal action, send a final demand letter to the customer refusing to pay. It should clearly state the amount due, the due date, and the consequences of a missed payment. It’s crucial that this letter is professionally written and highlights the urgency of the situation.
6. Pursue legal action
Have you done your best to resend invoices and reach out with reminders, but the customer still won’t pay? It may be time to end the working relationship and pursue legal action.
Your first option is to hire an attorney to reach out to the client on your behalf. They can send a letter requesting immediate payment. This includes copies of the initial contract and invoices as proof of the terms of the agreement between you and the client. A lawyer can also help if you choose to move forward with a lien or lawsuit against the client who is refusing to pay.
If that doesn’t work, you may choose to take your case to small claims court, which, depending on your state, you can do with or without a lawyer. However, each state has a minimum amount (usually $2000.00) you need to sue to ensure that the case is worthwhile. So, if you’re looking to collect a smaller amount, like $500.00, you may not be able to present your case to a judge.
Legal action, like hiring an attorney or taking your case to small claims court, costs money. You should only resort to legal action for large jobs and invoices. Otherwise, you may end up spending more to collect payment than the cost of the job itself.
7. Hire a collection agency
Collection agencies typically handle debts that are 90+ days past due. If you’ve exhausted options #1-3 and determined that legal action isn’t worth it, hiring a collection agency may be a good option for you. Their specialty is knowing how to collect money from clients who won’t pay.
Collection agencies work by charging you either a percentage of the debt or a flat fee per account that you need them to collect on. They’re ideal if you’re strapped for time or if you aren’t confident you know the rules and regulations surrounding debt collection in your state. For example, when and how you’re allowed to call a client whose invoice is outstanding.
Before you choose a collection agency, make sure to do your research by finding one that:
- Has experience making collections in your industry
- Is recommended by your colleagues or industry contacts
- Is licensed and bonded in your state
- Behaves professionally and within your state’s collection regulations
How to prevent overdue payments from clients
The best way to avoid customers who won’t pay for the work that you’ve done is to prevent these situations from happening in the first place. You can do this by:
1. Set expectations early
Setting clear expectations from the start helps prevent overdue payments. Here are a couple tips to effectively set these expectations:
Define payment terms in contracts: When you first engage with a client, ensure that all payment terms are clearly outlined in the contract. By having everything in writing, you create a formal agreement that both parties understand. It reduces the likelihood of payment disputes later.
Discuss payment expectations upfront: During your initial consultations, talk about payment expectations. Explain your policies for certain projects, installment plans, or any other payment schedule. This helps clients understand what’s expected of them. They’ll be prepared to meet these obligations.
2. Offer convenient and easy payment options
Clients shouldn’t have a hard time paying you. If you only allow payments via cash or check, arranging a payment may become a major hassle for your clients, meaning they won’t pay on time.
Accepting credit card payments on your phone or online makes it easier for your clients to pay anytime, anywhere. Plus, your business gets access to the money faster than with cheques.
3. Collect a deposit
A deposit won’t guarantee that your client will pay the rest of their balance on time. But it will help to ensure that they have some skin in the game and that you aren’t working for free. Clients who aren’t willing to put down a deposit before work starts may cause trouble down the road.
Make deposits a requirement for any new job to help weed out bad customers from the get-go.
Don’t forget to check your state’s maximum deposit allowance so that you don’t overcharge.
4. Send follow-ups and reminders
If your client doesn’t pay on time, they might not be doing it on purpose. Follow-ups and reminders can be a great way to remind a client that an invoice is due without souring your relationship.
Using Jobber’s invoicing software, you can send automatic payment reminders on every overdue invoice. Plus, you can customize your messages to include payment instructions. Remember: the easier you make it for clients to pay, the more likely they will.
Learn more about the best online payment methods for service businesses here.
5. Use professional contracts, quotes, and invoices
Professional, legally-binding, and signed documents are some of the best tools you have at your disposal. They can help prove that a client was aware of the terms and conditions of your business relationship.
Contracts, quotes, and invoices can all be used to show a client what they agreed to, and if necessary, to prove your case in court.
Always use professional, detailed quotes, and have your clients approve them before beginning work.
Wrap things up at the end of a job by sending a detailed invoice that includes payment instructions and a reasonable due date.
Originally published in July 2015. Last updated on June 24, 2024.
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