Dealing with deadbeat clients can be one of the most difficult aspects of running a business. While late payments can dramatically impact your bottom line, many business owners are also afraid of damaging an existing relationship over unpaid bills.
So what is the best course of action?
The simple answer is to develop policies and procedures that encourage clients to keep their accounts current. As the saying goes, an ounce of prevention is worth a pound of cure. For example, all of your business contracts should explicitly detail the terms of payment, including the penalties for failing to pay in full or on time. An invoicing system that alerts you when a payment is 30 days late can also help ensure that you address the issue before it escalates.
Of course, having clear debt collection policies will not always ensure that you get paid. Therefore, it is also important to have a debt collection strategy in place that shows you mean business, but also complies with state and federal debt collection laws.
While filing a lawsuit will certainly get the attention of a deadbeat client, a demand letter is generally the first step. It should request payment of the invoice and list all outstanding amounts due, including any late charges or accrued interest. The next step is to follow up. Since clients can easily misplace or even ignore a demand letter, it is sometimes more effective to contact the client directly via telephone.
Throughout the debt collection process, it is important to keep a written record of your efforts and any communications with the client. This information may be very valuable should you be forced to pursue legal action.
Finally, it is generally advisable to accept a partial payment, no matter how small it may be. Should you end up in court, the client will have difficulty disputing the debt if you can provide evidence that some of it has been paid.
How We Can Help
If you are concerned about your debt collection policies and procedures, it is imperative to consult with an experienced business attorney. Our firm can help you achieve your business goals, while also protecting client relationships. Contact us today to schedule a free consultation.