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Avoiding and Dealing With Non-Paying Clients

Entrepreneurs must develop the correct knowledge and procedures to successfully manage the problem of non-payment. The failure to avoid and deal with non-paying clients has a devastating effect on small businesses. A business can experience the inability to thrive when funds are not delivered on time, or not at all.

Before: Avoiding Non-Payment


Before deciding whether or not to take on a new client, research them. Determine whether or not their business is authentic. Dig to find information that may have been left behind by others who have worked with them. Doing a little grunt work saves a business much pain in the long run. Make sure potential clients are trustworthy and have ethical business practices.


Creating a written contract for a client to sign is the number one way to ensure a client’s commitment. A contract becomes the first step in ensuring a mutually honest business relationship. Make sure to have a lawyer draw up the contract document. This way, a business can make sure their contract includes all that it should. If having a lawyer responsible for this task is not an option, consider using a small business contract template .

Payment Procedure:

Clients must have a clear idea of what is financially expected of them. Their payment plan must be straightforward and consistent. It is helpful to set up recurring invoices. Also consider whether or not it is wise for certain clients to pay upfront or upon delivery. This consideration can be made based on their credit record . It is advantageous, for all parties involved, to add incentive for early payments. Providing a discount for clients who pay their invoices before their deadline is a beneficial business practice. Vice versa, clients who fail to pay within time requirements will be subject to penalty fees.

Records and Relationship:

Monitor each client with great detail. When clients are monitored, it is easier to understand their habits and, more importantly, to predict when they may fail to fulfill invoice payments on time. If a relationship is cultivated in mutual respect and understanding, problems are often resolved and avoided altogether.

After: Dealing with Non-Payment

Polite Reminder:

If a client fails to pay an invoice on time, the solution is to act fast with a simple reminder. Up to three reminders over the first 30 days is a good schedule to follow. Start with a polite phone call, and follow up with an email if the problem persists. Never accuse a client. Remember to build report and respect. Always take into consideration that the client may not have received the invoice in question. Double check that the correct contact information was used, or that the invoice was not misplaced in a spam folder. Keep in mind that a client may be out of the office for personal reasons. Also remember to look at a client’s previous payment habits. If they have been consistent in the past, there is likely a simple explanation for late payments.

Strongly Worded Email:

Clients who take longer than 60 days to pay their invoices require additional attention. After several reminders, construct a polite and honest email detailing the seriousness and unprofessionalism of an outstanding invoice. Explain to the client that they will no longer benefit from business services if payments are not made immediately.

Legal Action:

After 90 days of reminders and a strong warning, action is required. Going to the courts should be avoided, because the costs of taking a client to court often outweigh the invoice amount due. An exception to this is small claims court, which allows a claim to be made on unpaid invoices under $5,000 for a reasonable cost. However, there are alternative legal actions that are often effective before resorting to the courts. Arbitration/mediation , debt-collection and the Credit Reporting Bureau are ways of settling outstanding invoices.


If timely payment from a client is not an option, factoring invoices is favourable to enhance a business’s cashflow. Factoring companies purchase accounts receivable for immediate cash. Simplistically, this means a business receives a cash advance when they sell their unpaid invoices. As long as the client is a business or institution, factoring is a viable option.

Knowing how to navigate around non-paying clients to get the best results for both parties takes hard work and tenacity. Entrepreneurs must be equipped with the skills to face the challenge of non-payment quickly and with the right steps to achieve success. 


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