If You Own a Small Business and a Client Refuses to Pay for Services Rendered What Recourse Do You Have?
Most customers pay for the goods and services you receive, but if you stay in business long enough you’ll run into someone who doesn’t pay. If you performed the service or delivered the goods, you’re entitled to payment. You have several options for getting the delinquent client to pay up. Start with a soft approach and work your way up through firmer efforts to collect what you’re owed.
The Small Business Administration advises business owners not to wait until a payment is extremely past due to try to collect. As soon as the payment is late, send a reminder. Follow this up with a phone call to the customer or the business's accounts payable department. Use a friendly tone. Perhaps the customer merely overlooked the bill. Keep communications friendly and open. If the customer pleads financial difficulty, offer to work out a payment plan. Avoid threats or anger. Be firm and businesslike.
If the amount the client owes you is small, you may be able to file a claim in your county’s small claims court. Each state sets its own limits as to the amount of the claim you can make. Check with your county court to find out the rules for your state. You don’t need a lawyer to file a claim. Complete the required paperwork, then show up in court on the appointed day to present the facts. Refrain from anger or name-calling. Simply present your case calmly. If the court finds in your favor, the judge will order the client to pay you.
Sometimes, hiring a lawyer to write a letter demanding the client pay up will be enough to frighten a slow payer into paying up. You’ll have to pay the lawyer for her services, so you won’t want to take this step unless the client owes you enough money to make it worth your while. You also have the option to sue the client for the amount she owes. The threat of a lawsuit may be enough to cause some clients to pay, but be prepared to follow through with the suit if the client doesn't respond to your threat.
You may decide to turn over the account to a collection agency. Collection agencies aggressively try to collect the debt in exchange for a percentage of the money owed. If you opt for this path, deal with a reputable agency that will adhere to consumer protection laws. For example, collection agents may only call during certain hours, may not call a person at his place of business if he asks them to refrain from doing so, and may not use abusive language or make threats.
If the client who owes you has filed for bankruptcy, the law limits the steps you can take to collect your debt. You must submit your claim to the court handling the client’s bankruptcy. The court decides in what order the debts will be repaid, or if they will be repaid at all. If yours is a small debt, your claim will probably have a low priority. You might receive only a few cents on the dollar -- or nothing at all.