May 2, 201911:06 AMOpen Mic
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You have a nonpaying client who is ignoring your calls — what next?
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As a business owner, you know that nonpaying clients can eat into your bottom line and cause a host of problems. Consider, for example, the following situation:
A relatively new client has hired your business for ongoing services. For the first several months, everything went smoothly. You had a great working relationship with the owners and your invoices were paid right away. Lately, however, the client has been slow to pay. Several invoices are over 30 days past due, and your practice is scheduled to perform more work in several days. The total amount owed is now approaching $8,000. Your contract with the client says you can charge 5 percent interest on payments that are over 30 days late. What do you do?
Many business owners will be faced with some version of this scenario. While most of your time and effort is spent making sure you provide the highest quality services, it is also important to think about protecting your business from nonpayers. This article will provide a suggested roadmap on how to navigate situations like the one above, including why small claims court may be the best option to collect from a nonpayer.
In the situation above, let’s assume your office has already taken the usual steps – you have already confirmed you have the correct contact information and address for the client, made several phone calls asking about payment, and sent several follow-up emails seeking an explanation. No response. Now what?
The first step is a “demand letter” to the client.
This can be done with or without a lawyer. A demand letter should be clear and direct. It should simply list the relevant information, including: 1) the amount owed by the client; 2) the services your office provided for the client and the dates of service; and 3) the payment obligations created by the contract the client signed with your business. Any relevant documents and invoices should be attached, as well. Ideally, the letter will be sent through standard mail and by certified mail with a return receipt, so your office has a clear record that the client received the communication.
In addition, the demand letter should highlight the previous efforts your office has made to communicate with the nonpaying client before sending the demand letter (i.e., “We previously tried to contact you by phone on [DATE], and by email on [DATE]. We did not receive a response from you.”).
Finally, the demand letter should, as the title suggests, list a demand. This can be as simple as setting a deadline for the client to contact your office with a suggested repayment plan (i.e., “Please contact us no later than [DATE] with a proposed payment plan, otherwise we will be forced to consider our legal options.”).
If a demand letter from your office still does not produce a response from the client, the next step may be to get an attorney involved. A more formal letter on a law firm’s letterhead may prompt the nonpayer to take the situation more seriously. The initial demand letter your office sent will provide a useful template. It will also save costs because the attorney will not have to start from scratch.
The second step is to consider filing a legal action against the nonpaying client.
Of course, there are myriad factors that go into deciding whether to formally initiate legal action against a nonpayer, and this decision should not be taken lightly. Some considerations include: 1) whether the client will ultimately be “collectible” if you obtain a legal judgment against the client; 2) whether you are likely to do business with the client again in the future; 3) whether the nonpayer will take countermeasures against you or your business, such as posting a negative review online or filing a complaint about the service your office provided; and 4) what kind of message the legal action will send to other clients/prospective clients.