Client Won't Pay Invoice: 7 Strategies to Recover Your Money

If you’re running a business, you have to know what to do when a client won’t pay an invoice. These are unique challenges for sellers and service providers that can result in financial losses, disruption to the cash flow, and operational instability.

This article will teach you how to handle a client who won’t pay. We’ll explore the most common reasons clients don’t pay invoices, proven tactics to remedy these issues, and prevention strategies to help you avoid these instances and ensure the financial health of your enterprise.

Key Takeaways

• There are many reasons why clients won’t pay invoices, including financial difficulties, invoice disputes, bad communication, and intentional nonpayment.
• If a client won’t pay an invoice, you should politely remind them before escalating the situation to final notices, third-party employment, and legal action.
• Prevention strategies like bulletproof contracts, deposits, and screening can help you avoid nonpaying clients.
• To maximize your chances of getting paid, create clear and detailed invoices, send them at the right time, and follow up when needed.

Why Clients Don't Pay Invoices: 4 Common Reasons

Before we dive into the strategies of dealing with clients who won’t pay their invoice, let’s figure out why they do that in the first place.

#1. Financial Difficulties

One of the most common reasons clients won’t pay an invoice is that they are facing financial difficulties. For instance, their business could be having problems with cash flow, trying to resolve unexpected expenses, or even facing insolvency.

In these cases, transparent communication could help both parties find common ground. You can renegotiate the payment terms and allow the client to get back on their feet before paying an invoice.

#2. Invoice Disputes

Sometimes, clients can withhold payment due to issues with invoices or provided goods or services. Invoice disputes can arise for several reasons, including incomplete work, insufficient quality of an outcome, an increase in scope without a client’s approval, and so on.

Some of the errors can be strictly invoice-related. For instance, your invoice could be missing critical information needed to complete the payment, the rates could be wrong, the calculations could be incorrect, and so on.

#3. Intentional Nonpayment

Some clients are bad actors and will intentionally avoid paying an invoice. Some clients intentionally delay payment as long as possible, and those who don’t plan on paying from the start. These clients will often ignore attempts at communication or make the same false promises repeatedly to avoid paying.

Identifying these types of clients sooner rather than later can help you address and resolve the issue before it becomes more complex.

#4. Communication Breakdown

Finally, many cases of nonpayment stem from a simple communication breakdown with the client. For example, an invoice can land in a cluttered email and be missed by a payee or overlooked by busy staff. Sometimes, the client can be unclear on the terms, so they’ll ask for clarification, but they will not receive a response from the invoice issuer.

What to Do When a Client Won’t Pay Invoices: 7 Effective Strategies

Let’s explore seven effective strategies, escalating in approach and intensity, that can show you what to do if someone doesn’t pay you for a service.

#1. The Friendly Reminder Approach

Contacting the client with a friendly reminder is one of the best ways to chase an unpaid invoice politely. In many cases, a delay in payment isn’t intentional but stems from a simple oversight.

A friendly reminder should be your first step when tackling unpaid invoices, and you should take it a few days before or on the due date. A simple, polite inquiry can remind the client and resolve the issue.

One of the easiest ways to do this is to send a brief email with an attached copy of an invoice, politely reminding the client and asking if they have any questions.

#2. Direct Conversation Strategies

A direct conversation is another way to politely ask for an invoice payment when an indirect payment reminder doesn’t yield results. This is a good strategy when the payee is a few days late.

A common approach is to contact the payee via a phone call, as direct conversation allows for dialogue with immediate responses, making it more effective than email communication.

You should maintain a polite and professional tone while firmly restating the payment terms and amount. You can also ask for clarification as to why the invoice hasn’t been paid and inquire when you can expect the payment.

#3. Offering Payment Solutions

If you notice that the client is willing to pay but faces temporary financial difficulties, you can offer more favorable payment solutions.

Some of the options include:

• Giving the client an extension and postponing the due date.
• Proposing an alternative payment plan with installments over a few weeks or months.
• Offering an invoice discount for immediate partial or complete payment.

You can offer these solutions via email, phone call, or even in person, and it’s essential to confirm the new arrangements in writing to avoid further issues.

#4. Final Notice Communications

Giving the client a final notice should be the last step before resorting to a third party or legal action. If the payment isn’t coming for an extended period (even after you’ve politely reminded the client) or if there’s a lack of communication, you should go with a more formal and serious approach.

In general, you should wait for a client to pay an invoice for at least 30 days after the payment is due before sending a final notice. The timing can be 60 or 90 days, depending on the circumstances. If sending an email or a letter, you should include “Final Notice” in the title.

Furthermore, you want to mention your previous attempts to collect payment and restate the consequences of not paying (e.g., fees or escalation).

#5. Involving Third Parties

If your efforts to contact a client who won’t pay the invoice fail, you can employ a third party, like a mediator or a collection agency.

Mediation is a more amicable method of settling an unpaid invoice via a third party by having a professional who can resolve the dispute outside of court.

On the other hand, collection agencies follow the Fair Debt Collection Practices Act (FDCPA) and specialize in legally recovering debt, but using them can be seen as more adversarial.

#6. Legal Options for Small Businesses

Taking legal action for non-payment of invoices is typically the last resort for small businesses. This option usually takes time and resources, which is why it should be carefully considered prior to taking action.

Some of the options include:

• Small claims court. This is a solid option for claims between $2,500 and $25,000.
• Civil lawsuit. Filing a civil lawsuit with the help of an attorney can be the only option when there are large sums in question.
• Demand letters. In many cases, an attorney’s demand letter can convey your seriousness and prompt payment without going to the courtroom.

#7. When to Write It Off and Move On

On rare occasions, writing the debt off is the best move, as the cost of pursuing it outweighs collecting it. For instance, strategic abandonment should be considered when a customer who refuses to pay for the work done goes bankrupt or closes their business, or the debt isn’t too big.

While this will result in an initial financial loss, you should consider deducting bad debts on your business taxes to recover some of the damages.

Prevention Strategies: Before the Work Begins

The best way to deal with unpaid invoices is to prevent these instances from happening. Let’s explore the most common and effective prevention strategies.

Creating Bulletproof Contracts

The first thing you should do is create a robust contract that clearly outlines all the terms of engagement and payment.

By precisely describing the key aspects, you’ll avoid misunderstandings while having strong legal grounds in disputes.

Here are some of the key clauses to consider adding to your contracts:

• Precisely defined scope of work with deliverables and timelines.
• Payment terms with items, rates, dates, accepted methods, and currencies.
• Late penalties that clearly outline any fees and interest.
• Dispute resolution processes.
• Termination clauses under which agreements can be annulled.

Upfront Deposits and Payment Schedules

Asking for payment upfront and milestone payments significantly minimizes your risk. These strategies are particularly important when dealing with new clients or expensive, large-scale projects.

Asking a new client for a deposit (typical amounts ranging between 25% and 50%) before starting work helps you cover the costs and ensure commitment on their end.

Milestone payments are essential for long projects, where you can set up a payment structure to follow specific stages or deliverables.

Client Screening Techniques

Each client is different, and screening them can help you anticipate their behavior to avoid problematic payers.

The easiest way to screen a client is to look them up online and check their website, social media presence, reviews, etc. Asking for references from other professionals in your network might give you more accurate information about the client’s behavior and payment history.

You can also conduct a credit check with the customer’s permission or schedule a meeting with them to assess their behavior and professionalism in person.

Setting Clear Expectations

Miscommunication is one of the leading causes of payment disputes, which is why it’s imperative to set clear expectations from the get-go. In addition to creating a bulletproof contract that specifies all the important information, you want to ensure the client understands everything and is on board with it.

Clearly communicate everything during the onboarding process and get written confirmation from the client that they agree with your terms. If the project is larger in scope, you should provide regular updates and maintain transparent communication to avoid new issues from arising.

3 Best Practices for Professional Invoice Management

The way you create and manage your invoices can have an impact on how you’ll get paid. Let’s see the best practices for professional invoice management.

#1. Creating Clear, Detailed Invoices

Clear and detailed invoices significantly reduce the chances of payment issues. When you have all the necessary information laid out for the client to see and understand, you’ll avoid disputes due to misunderstandings or lack of communication.

A well-written invoice needs to have your business contact information and the client’s details, invoice number, date, and a clear description of the goods or services. You should provide a breakdown of every item's rates and costs and include applicable taxes and the total amount.

Lastly, you should include payment instructions with the accepted methods and currencies.

#2. Timing Your Invoices Right

Invoice timing is another contributing factor, as it helps keep it in the client’s memory. Sending an invoice promptly after providing a service or delivering goods maximizes the chances of getting paid and demonstrates professionalism on your end.

If you have clients on retainer, you should automate the invoice process to deliver them on the same day every time.

#3. Follow-Up Systems That Work

Following up on your invoices is a great way to ensure clients don’t forget about them and to nudge them toward paying. You can set up automated polite reminders to send a few days before a due date, increasing the chances of a smooth transaction.

Having tracking systems in place and using software for invoices and reminders makes this process much faster and easier while boosting the chances of a successful outcome.

Paystub.org: Your Solution for Faster, More Reliable Payments

Paystub.org can help you effortlessly create professional invoices to ensure reliable payments.

We created a robust and intuitive invoice generator that you can use to design and download the document you need in minutes.

Here’s a brief step-by-step guide:

• Navigate to the main page of our website and select an invoice generator (we also offer a paystub generator, Form W-2 generator, and Form 1099 generator).
• Choose a template based on your needs and preferences.
• Follow the instructions and input your details in the designated areas. You can add or subtract items, leave notes, upload your logo, and more.
• Review your final invoice and check out to download it.

Our templates are designed by industry professionals and tax experts to have all the necessary information, along with proper formatting and elegant design. Save precious time and effort, and focus on growing your business while our platform helps you enhance invoice management and record-keeping.

Final Thoughts

Clients who won’t pay invoices are a common occurrence when running a business. Knowing relevant laws regarding the non-payment of invoices, as well as prevention and follow-up strategies, can help you overcome these obstacles and maintain the financial health of your enterprise.

If you often ask yourself, “How do I convince my client to pay?” start by creating more robust contracts, screening your clients, and asking for down payments. And if you already have non-paying clients, don’t forget to try a polite approach before resorting to formal notices and legal action.

Clients Won’t Pay Invoice FAQ

#1. Can I charge interest on late payments?

Yes, you can generally charge interest on late payments, as long as that has been clearly stated in your contract. State usury laws set a limit on how much interest you can charge, and the exact amount should be specified and agreed upon by both parties.

#2. Should I continue working with a client who hasn't paid?

Typically, you should pause or stop working with a client who hasn’t paid. By continuing to work with them, you increase your financial risk and potential losses.

#3. How long should I wait before taking legal action?

There isn’t an exact limit on how long you should wait before taking legal action, but waiting 60–90 days past the due date is common. You shouldn’t wait for too long, either, as some states have statutes of limitation, meaning your client’s debt may expire in 3–6 years.

#4. What's the most effective way to prevent nonpayment?

The most effective way to prevent nonpayment involves having a systemic approach that consists of both prevention and payment collection strategies. By having bulletproof contracts, screening clients, and asking for a down payment before starting to work, you’ll significantly reduce the instances of nonpayment.

#5. Can I deduct unpaid invoices from taxes?

You can deduct unpaid invoices from taxes if you’re using the accrual accounting method. By showing that you’ve done everything in your power to collect payment and that there is no chance of getting it, you can deduct an unpaid invoice as a business expense for tax purposes.