Getting paid for your products and services is essential to your small business’s success. But what happens if a client doesn’t pay you the money they owe? The thought may seem daunting, but the situation can be manageable if you understand what to do.  

This guide will discuss what happens if a client doesn’t pay, including:

  • Creating transparent payment terms 
  • Tracking late payments 
  • Reminding clients about late payments 
  • Bringing clients to court 

Creating transparent payment terms 

To prepare for and avoid late payments, you’ll first need to create clear terms and choose clients wisely. 

Creating payment terms 

Creating clear payment terms is the first step to avoiding non-paying clients. So, outline how you will send invoices as well as record them. When you take on a new client, inform them of your payment expectations. For example, you may offer 14, 30, or 60 days to pay an invoice. 

Also, outline how you’ll handle late payments, such as the statutory interest or the 8% interest you can charge on late invoices. You could also include debt recovery fees for any costs you incur while chasing late payments. 

Make sure to have your clients sign off on your payment agreement so you can hold them to these terms. If your contract is clear, clients will know the process and what you expect of them.

Choosing clients well 

To avoid non-paying customers, consider each new customer you take on. If a client presents red flags, think about whether their business is worth taking. For example, say a client is late to meetings, disorganised, and inconsistent with what they want. This behaviour may translate into how they pay their invoices. 

To ensure you take on the right clients, you may want to schedule introductory meetings to get to know them a bit. You could also request a down payment before offering your services. These procedures can help you pick the right people to work with, so you earn the money you work for. 

Focusing on client relationships

Focusing on customer service and loyalty can also help you prevent non-paying customers. If you build strong, trustworthy client relationships, they will be more likely to pay you on time or explain the situation in which they’re unable to pay. 

If you prioritise communication, you can be more aware of issues with clients and be clear about what you expect from them. 

Tracking late payments 

So, what happens if a client doesn’t pay? Once you have structured payment terms, you can organise records to spot late payments. 

Organised finances will help you track your payments closely. To do this, you’ll need a business current account and accounting software. Unlike most options, the Countingup app combines these things letting you manage all your finances in one place. 

With Countingup, you can create and send unlimited invoices on the go. The app will notify you when you receive an invoice and automatically match it to a payment. This tool helps you track your invoices and when clients have paid. On the other hand, it enables you to spot invoices that clients are late to pay. 

Reminding clients about late payments 

You can send clear but friendly reminders when you notice a client hasn’t paid. Chances are they may have forgotten or prioritised other tasks. Chasing up late payments can bring them to the client’s attention and help you avoid further action. Even if you have to take further action, you will need proof of attempting to receive the payment. 

If a reminder or two does not help, you may need to send a firm final reminder outlining the next steps. 

Determining why they haven’t paid 

Asking why clients haven’t followed through on an agreement can help you understand what to do. For example, clients may not have the immediate funds to pay you. In this case, you may want to negotiate with the client to get your money without a complicated court process. 

Alternatively, if you can’t seem to get through to the client, or they don’t seem willing to pay at all, you may need to take further action.  

Bringing clients to court 

When you make your payment terms clear and send late reminders, what happens if a client still doesn’t pay? Your next course of action is to bring your client to small claims court for the amount they owe your business. To do this, you’ll need to send your client a letter outlining your intentions. Clients will have to respond to this notice within 14 days. Otherwise, they’ll need to pay the total amount.  

Calling your client to court will cost you a fee. Plus, if you lose the case, you will not earn back the money you owe. This risk is why you should save this action for the last resort. But, if you win, sending clients to court will allow you to recover the money clients owe you. Plus, you can ask clients to cover your court fees. 

To prove yourself to the court, you’ll need to outline your efforts to inform clients of their late payments. So, keep any communications, emails, and documents that show you tried to remind the client of the payment. Also, bring proof that your client agreed to your payment terms.

Depending on the amount your client owes, you may want to seek a solicitor for legal advice for this situation. You can learn more about sending clients to court here

Simplify your financial management with Countingup

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like invoicing on the go, notifications once you’ve been paid and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here and start your 3 month free trial today.