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How to Handle Deadbeat Clients

Success is never owned; it’s rented. Rent is due every day.

No one likes chasing money. No one. However, sometimes it is necessary. There are clients out there who don’t pay for services rendered. On purpose. There are clients who take forever to process your invoices. And, there are clients who are consistently forgetful when it comes to sending your cheque.

Most people find confrontation difficult. Some eliminate the risk of cashflow interruption by getting paid in advance. (That’s what I do.) Others offer credit terms as part of their services (as a point of differentiation). And many, especially those working on 6- and 7-figure projects, use a retainer-plus-multiple-payments model.

No matter how you’ve structured your billing, following up on overdue invoices (your accounts receivable) is a requirement for running your business responsibly. And there are things you can do from the start to make it more manageable and less likely you’ll have to deal with a lot of deadbeat clients.

STEP 1: Pre-define billing and payment policies

Think through and document your billing policies and spell out payment terms in your contracts. (This is particularly important when doing business with friends and family — something I do not recommend.)

The contract should cover details such as:

  • payment schedule (e.g., deposit/retainer requirements, next payment and action it is tied to (this could be either a date, period of time, or specific milestone), and final payment (often but not necessarily tied to project completion)
  • terms (when payment is due as well as any discounts you offer for payment within those terms and any interest penalties applied to payments outside your terms)
  • preferred currency and payment method (choose what works best for you), and
  • what clients can expect if timely payment is not received (e.g., perhaps you retain key deliverables or copyright ownership until payment is made or your policy may be to cancel all services on overdue accounts in 30 days).

In other words, there shouldn’t be any surprises with respect to how your working relationship is expected to unfold and what the consequences of not paying as agreed will be.

Negotiating contracts is a skill critical to creating the profitable working relationships needed for your business to succeed. No reputable company is offended or professional relationship damaged by your effort to protect the interests of all parties to the agreement.

STEP 2: Prepare timely invoices

Show respect for yourself and your clients by taking the billing process seriously and issuing invoices in a timely manner, per the terms of the contracts you’ve worked hard to put in place. However, know that even when you do all of this, there will be times when expected payments are not received.

STEP 3: Get an explanation

Not all late payments are worst-case scenarios. Your first job is always to understand why this has happened so you can respond accordingly.

If it’s simply an oversight, a gentle reminder might be all that is necessary. If your client is withholding payment as a protest for unsatisfactory work, you need to understand and resolve the issues. And, if your client is in dire straits and having difficulty meeting financial commitments, you need to know when you can reasonably expect payment.

STEP 4: Follow up but mitigate risk

Following up with a client is always best handled by a person, not an automated system — it is a sensitive communication. If you are in the middle of a project and this is already happening, you might want to consider stepping back or slowing down for a bit, restricting access to deliverables and possibly stopping work on the project altogether. What you don’t want to do is rush into an overly aggressive collections stance if it isn’t necessary.

STEP 5: Maintain clear boundaries

You do have to maintain clear boundaries and honour your core values, but it is possible to be both professional and sensitive to your client while doing so. Indeed, all your communications with others can (and should) come from a place of compassionate respect and controlled kindness.

Thoughtful, effective leadership is rooted in a spirit of abundance supported by clarity of vision. Decisions and actions that are tempered by a commitment to professionalism yield the best results from even the most unfortunate circumstances.

This is not to say that one ask is going to get you the outstanding payment you’re after. You might have to follow up multiple times before you finally get paid.

But diligence in following up tells a client you are serious in your efforts to collect what you is due to you. You can’t feed yourself or your family on good intentions and broken promises. Even if you wanted to.

STEP 6: Manage your emotions

When you have a pre-defined billing and payment process in place, and a follow-up procedure for outstanding receivables as well as a contract supporting the client’s agreement to pay, most of the emotional component should be well managed. The rest depends on your commitment to acting on your own behalf and continuing to follow up until payment is rendered even when you dread having to do so.

Sometimes the lesson only gets learned after a bad experience (or two or three, hopefully not more than that)! This is not the best use of your time and energy. Put systems and processes in place to reduce the likelihood it will happen again. Your business will be the better for it.

STEP 7: Escalate if necessary

If you’ve done all of that and payment is not forthcoming, you need to escalate matters further. This could mean:

  • having a lawyer send a formal demand for payment,
  • working with your client to reduce payments to a level more manageable for them,
  • offering a lump-sum settlement alternative,
  • hiring a collection agency to pursue the debt on your behalf, or
  • possibly even taking your client to court.

The important thing to remember is you have options. Don’t just walk away doing nothing about the situation. At the same time, don’t publicly out your client or try shaming them in social media. It doesn’t work, it makes you look like the idiot, and it can cost you a lot more than you’re already out. So, just don’t do it. No matter how tempting or satisfying it might feel to vent. You. Are. Better. Than. That.

Reliable systems, clear boundaries, workable processes, absolute professionalism and an unwavering belief in the value of your work and service to others is the best way to reduce your chances of having to deal with deadbeat clients.

(For more on this subject, read the post: Get Paid For The Work You Do.)

More next time. Until then, remember to LOVE YOUR WORK, whatever it may be.

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