What to do when a client refuses to pay or can’t pay

If you’ve got a business headache right now, there’s a pretty good chance it’s to do with clients owing you money.

It’s almost as if the current economic shutdown (late 2020) has become a prime opportunity for anyone who fancies improving their own cash flow to help themselves to better credit terms from their suppliers… but without asking permission.

That has a knock-on effect right down the line. And it’s no wonder that small, cash-poor companies at the bottom of the chain are the ones that suffer the most.

At Bytestart we have always campaigned for businesses to pay each other as quickly as they can. We regularly pay our own suppliers as fast as our cash flow allows.

But on the off chance your clients aren’t as thoughtful; there are plenty of things you can do about it.

You should set up a clear system for chasing clients for money within your business. Schedule polite but firm reminder letters as soon as payment is due and at regular intervals. Always give deadlines for payments.

And don’t be afraid to stop working for clients who don’t pay their bills within a reasonable time… it’s not good business to do work you are unlikely to be paid for.

Worse than slow-paying clients are those who refuse to pay or can’t pay. Before you refer them to a debt collection agency, there are many things that you can about it do yourself.

Here are three common client payment problems – and what to do about them:

Your client isn’t returning your calls or emails

The first rule of good debt management is to make sure people know when they owe you money. But if they don’t respond to your reminders you need to establish why.

Before you barge in with all sorts of threats, you should check they have received your communications. Check the business is still alive, and running from the place you are sending the bills to – look at their website, call their reception, check their address.

Also, check the email address you have been sending messages to. It could be something as simple as a personnel change that is preventing anyone from knowing about your payment problem.

If the business is still running, send a recorded letter with your final demand and follow it up with a phone call. You need to ensure they know there is a problem before you elevate it.

If the business has moved, you should try to track them down and resend your original bill. If the business has ceased trading and it was a limited company, then you will need to contact the administrators to register as a creditor… sadly, you won’t be able to bank on seeing much cash very soon.

If the debt is with a person, contact a debt collection agency who will be able to advise on your next step.

Your client keeps sending cheques but they are getting “lost in the mail”

First, you need to give them the benefit of the doubt that payment has been sent in the post. But then you are well within your rights to insist on a different – more up-to-date – payment method.

Either ask your client to send their money by Faster Payments bank transfer, or consider setting up a Paypal account which will allow them to pay you using a credit or debit card (you will pay a small fee).

Although there can be few excuses for not making electronic payments these days, the other thing to try is to send someone to their office to pick up a cheque from them. If they are a long way away use a courier. This may sound extreme, but it’s the only way to find out if they are genuinely willing to pay or are just using the old “lost in the mail” excuse to stall payment.

Your client’s cheques are rubber (and bounce all over the place)

The law says that when a client writes you a cheque they effectively promise that the cheque will definitely be honoured by the bank. And there is an implication that if the bank does not honour the cheque they will compensate you in full. Sadly, if you have ever had a rubber cheque, you will know there is a good chance you might not get your money.

If a client’s cheque bounces or they stop it – and you have a feeling they aren’t going to pay – you are legally entitled to pursue the client and should talk to a debt collection agency immediately.

In extreme circumstances, you can push for bankruptcy if an individual owes you £750 or more, or winding up proceedings if it’s a limited company. This is the last step to resort to, but can be used as an effective threatening weapon.

In our view cheques are an outdated way of accepting payment in 2020 and you should avoid this problem altogether by insisting on payment by bank transfer or credit/debit card.

Last updated - 21st November, 2020

Bytestart Limited info@ByteStart.co.uk