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6 Options When Your Start Up’s Clients Don’t Pay Up

6 min read

No small business is comfortable with clients who don’t pay up, but not receiving payment can be particularly challenging for start-ups.

Successfully managing cash flow in the early stages of a business venture is rarely a walk in the park. Still, ultimately we must put our trust in our clients that they will pay their invoices reliably in order to support our venture’s growth. Still, the likelihood of not suffering a bad payer occasionally is slim – so what can be done when a client doesn’t pay up?

Here are six options for start-ups handling clients that don’t pay up

The picture shows a girl who is nervous because she is working with clients for the first time

1. Stop Working

First and foremost, make contact with the client and establish first-hand if there is an issue. At times, what seems like a potential problem turns out to be something more easily rectifiable. Perhaps they genuinely forgot to make the payment, or they have a temporary issue with cash flow and have their heads buried in the sand – although it’s not ideal, it may be solved with minimal disruption to the workflow or client-business relationship if you reach out to them directly. It may require that you negotiate some repayment terms that work for you both, in which case, ensure that you do not forfeit your own ability to cover expenses, etc., but some compromise and understanding can sometimes avoid much bigger problems down the road.

That said, sometimes it isn’t possible to reach a satisfactory solution. Either no fair agreement can be reached, or perhaps the clients themselves can’t be reached. As soon as a clear difficulty in collecting an outstanding invoice from your client becomes apparent, stop working. Ceasing work may seem obvious, but it can be hard to resist carrying on when a project has a timeline and other contractors are involved.

Once the payment is sufficiently late that there is cause for alarm, if you are mid-project or have any other outstanding work pertaining to these clients, cease all work on the project for maximum leverage.

2. Charge Late Fees for Unpaid Invoices

Make your timeframe for payment very clearly outlined on any invoices you send out, and don’t be afraid to charge late fees for unpaid invoices.

Of course, you can use your discretion when it comes to any clients with whom you trust and have legitimate reasons for late payment, but typically, try to maintain a clear, no-tolerance stance on late payments.

Ideally, you will have worked your policy for late payments into your written contract with the customers after you bill a client.

Therefore, any follow-up correspondence will simply alert them to terms they have already agreed to, which further strengthens your chances of receiving the payment. To make this process easier, you can use invoice software to automatically send reminders for unpaid invoices.

3. Request Up-Front Payments for Large-Scale Projects

It is common for businesses to request a percentage of the overall project’s cost upfront, and in many cases, staged payments upon completion of outlined sections of the work. Receiving upfront and staged payments not only provides you with some working capital and peace of mind, but it allows you to refuse to continue working until the latest stage payment has been made.

4. Explore Alternative Contact Options

If the usual contact person is not responding to your messages, try making contact another way. For example, if you are dealing with a business, you can likely find alternative contact information online. Try their website, LinkedIn profiles, or other social media platforms and exhaust all avenues – phone numbers, email addresses, etc. Failing that, if the account is worth enough to you, consider stopping in at their offices if they are close enough – it’s far harder for them to evade your requests face-to-face. That said, be sure to remain civil and avoid any aggressive confrontations.

5. Consider Factoring

Factoring is essentially debtor finance, a transaction in which a business sells its outstanding invoices to a third party factoring business at a discounted amount. For example, you could sell an unpaid invoice to a factoring business for 75% of its worth, and from there, it is up to them to recoup those costs directly from your ex-clients.

This can be a great solution if you have gone many months without payment and are losing hope of it ever being settled. That said, losing a quarter – or more depending on the company – of what you are rightfully owed is far from ideal. Choosing to factor will depend upon the individual circumstances and how much time and money have already gone into chasing the debt.

6. Take Legal Action

Taking legal action can be costly both in time and money, and it can put a significant strain on a small business, particularly a fresh start-up. Nevertheless, some unpaid debts are sizable enough to warrant action.

Look for a local small business lawyer who charges reasonable rates for handling unpaid invoice communications – sometimes just the threat of you taking legal action coming from a professional is enough to motivate clients to cough up what’s owing. Of course, depending upon the amount, you may consider seeking legal advice for taking the matter to the small claims court.

Tips for Avoiding Non-payment

Sadly, some people simply lack the integrity of paying their invoices and are comfortable with attempting to push you to the point of giving in. However, there are some things you can do to best protect yourself.

1. Work with Reputable People

Before agreeing to work with people, do a little research on them. The internet can provide a wealth of information on people’s characters, so see what you can find. Poor reviews, questionable content, etc., can all point towards the potential for trouble.

Ask around, too – if they are a well-known and respected person or business in the local area, it shouldn’t be too hard to find people willing to say good things about them.

2. Insist on a Contract

Creating a contract that clearly details the scope, timeframe, and payment structure of a project, as well as your late payment policy, will go a long way towards protecting you from having any issues in the first place. Subsequently, if the client still makes trouble despite a legally binding contract existing between you, it will assist you in successfully taking legal action if necessary.

The picture shows people working in the office

Additional Advice

1. Prioritize Your Staff

When nonpayment is severe enough, it can damage your cash flow to the extent that it impacts your staff. Wherever possible, avoid having to cost-cut at the expense of your employees. You will only create more problems if you neglect your employees in any way. Maintain their trust by communicating openly about what is happening and what action you are taking to resolve the problem.

If it becomes necessary to obtain a bridge loan or other finance to keep your staff paid on time, do it. The engagement, motivation, trust, and productivity of your staff are at stake, and they are pivotal to weathering the storm and emerging strong and with your reputation intact. Increased employee turnover is also an expensive problem to have, so be sure to show loyalty to your staff and keep them informed.

2. Consider Protecting Your Business with a Trade Credit Insurance Policy

One of the most valuable tools for optimal credit management is Trade Credit Insurance. While you may not want to fall back on it for every tricky payment collection, if you’re let down by a significant and typically reliable client or organization, it can be invaluable in avoiding devastating disruptions to your work and cash flow, especially when you’re starting up.

Well-established and reputable Trade Credit Insurance providers can even act like risk management experts on your behalf, using data analysis and other insights to help you to pick the right clients to do business with. Being compensated in the event of experiencing a bad payer can make all the difference to surviving in business, especially during the initial stages of a start-up.

3. Know When to Cut Your Losses

Once you have taken every action you can to collect payment and still there is no resolution, it’s important to know when to cut your losses. There comes a point at which some debt collections simply become more trouble than they are worth – not only financially, but energetically.

Of course, the specific circumstances will largely dictate when this point is reached.

Still, be sure to check in with yourself and consider objectively whether your business would benefit more from continued pursuit of the debt, or by drawing a line in the sand and beginning a new day free from the burden of it.

At that point, selling the debt off to a factoring business is better than nothing and will bring closure to the issue, allowing you to channel all of your efforts into learning from the experience and growing the business moving forwards.

There’s potentially the opportunity to recoup some cash through your tax return as well. With the right approach to handling unpaid invoice write-offs, you may be eligible for avoiding overpaying on income or revenue that ended up never entering your accounts.

Final Thoughts

Start-ups take guts, and you deserve to be paid and respected for your work, so stand up for yourself. Additionally, take all precautionary measures to protect yourself from non-payers and unsuccessful litigation by diligently putting contracts in place and researching your clients before choosing to work for them.



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