What to do when a client refuses payment
Once you've completed a project, it might seem that the client has all the power. If he refuses to pay you for the work you performed, you may feel both frustrated and powerless. While you cannot make him pay just by demanding your due, you do have recourse. Often, small businesses start by sending collection notices before escalating the situation.
1. Reminders
Persistence sometimes pays off when it comes to collecting payments from clients. Send monthly bills that clearly show that the bill is overdue. You might also benefit from calling the customer once a week to remind her of the overdue payment. Check your state's collection laws, however, to ensure your letters and calls stay on the right side of the law. While persistence doesn't always work, it does demonstrate that you will not give up.
2. Customer Adjustments
Sometimes clients refuse to pay because they don't feel they received their money's worth. If your client expresses upset or disappointment over the service you provided, consider offering a discount or a coupon for a future service. For example, if you offer to take 10 or 20 percent off an unhappy client's bill, this may satisfy him that you took his complaints seriously and encourage him to pay. In addition, apologizing for the problem might help.
3. Letters of Intent
You can send the client letters that state your intent with regard to her debt. For example, you may notify her of your intent to report the debt to a credit bureau or seek the help of a collection agency or attorney. Some people will pay to avoid damaged credit and annoying calls and letters from collection agents. Avoid threatening to harm the client, however, as this violates the law. For example, you cannot threaten to harm a client or his family, but you can state your intent to take legal action, including suing the person in court.
4. Small Claims Court
If your client refuses to pay after a reasonable amount of time and collection effort, you can take him to small claims court. Usually, the fees for small claims cases are fairly low, and you can present your case without a lawyer. However, small claims courts limit the amount for which you can sue. For example, in Texas, your claim cannot exceed $10,000. Check with your local small claims court to learn its dollar amount limits.
5. Civil Court
If the amount your client owes exceeds the amount allowable for small claims court, you can sue in civil court. You can represent yourself in civil court, but you might have a better chance of winning with a lawyer to handle the complex proceedings. In fact, some clients will negotiate settlements after receiving court documents or letters from a lawyer. If a client knows you have a strong case and a willingness to pursue it, she may settle to avoid court fees, lawyer fees, embarrassment and wasted time.
6. Mediation
You can hire a mediator to help you and your client come to an agreement regarding your dispute. A mediator focuses on non-adversarial conflict resolution without taking sides or providing a judgement. Typically, a mediator allows parties to a dispute to air their points of view and then encourages them to cooperate in reaching an agreement. You will have to pay the mediator, however, or get your client to agree to help pay for this service. In addition, you have to convince your client to enter mediation with you.
7. Arbitration
Check the contract you signed to see whether disputes require binding arbitration, an out-of-court resolution process. In such a case, an arbitrator will consider your dispute and decide how to resolve the case. If your contract has a clause for binding arbitration, this means you cannot take the client to court and you must abide by the arbitrator's ruling. The arbitrator, instead of a judge, will examine the evidence you provide, but the resolution process usually proceeds faster than the typical court case.
