Clients Owing Money: What Can Entrepreneurs Do?

1. Clearly establish terms and conditions from the get-go

To avoid having to deal with your clients’ delay or failure to pay invoices, it’s best to define the terms of your contract from the start.

• Your estimate should include general terms and conditions of sale or service, payment deadlines, late payment penalties, and a fixed indemnity for collection costs. This way, in the event of late payment or non-payment, you’ll have every chance of getting your money back.
• Your invoices should also be detailed and sent as soon as the good or service has been delivered.

2. Act quickly

Even though there’s no good excuse for not paying you, a delay or oversight can happen. Your client could also be ill or on vacation. In any case, the best thing to do is to act at the first sign of delay.

• Follow up with your client by sending them an email reminder to pay your invoice. This invoice should include all the details that were in the original one, but highlight especially the payment date, which has passed. If your contract provides for interest on late payment, let the client know that you intend to add interest if the invoice is not paid within a week. Alternatively, you may choose to invoice them directly.
• If, despite your reminder, the client still hasn’t paid what they owe after a few days, contact them directly by telephone. A verbal conversation will remind them that… you’re human! This will also shed some light on the situation. Don’t hesitate to explain the impact this late payment is having on your cash flow. Keep your tone courteous, but firm, and end your conversation by summarizing the promise they made you: “As agreed, I’ll expect payment by Tuesday.”

Sometimes, clear communication can help settle matters quickly.

3. Recoup your money

• Implement a payment plan: if ever your client has a liquidity issue, propose a payment plan. By spreading out the payments over a few weeks, you’ll be sure to get your money back, while giving them room to maneuver.
• Send a formal notice: In Quebec, payment terms are generally 30 or 45 days. If your client hasn’t paid within 90 days, send them a formal notice of unpaid invoice. Formal notice is a formal letter in which you ask the client to pay the debt. It precedes legal action. You can draft this document yourself (templates are available on the Internet), or enlist the help of a lawyer. The letter must be sent by registered mail with acknowledgement of receipt.
• Call on a collection agency: they will take care of recovering what you’re owed, for a fee.
• Take legal action: If all the preceding isn’t enough, you’ll have to get down to business. Under certain circumstances, you may be eligible to file your claim directly with Small Claims. Hire a lawyer to help you through the process.

4. Let it go if costs are too high

If the situation is costing you more in time, money and energy than the amount you’re owed, sometimes it’s better to know when to let it go. Dwelling on an unpaid account for months on end could demoralize you, as well as cost you time, money and energy. On the other hand, it’s almost certain that you’ll never forget this bad experience, so you’ll be able to bolster your terms and conditions of sale or service on future invoices.

In conclusion

If you have clients owing you money, act quickly and methodically. Remain polite, but firm. Try to resolve the problem by communicating directly with the client, but don’t wait too long to take the next step if you see that they’re not responding. Delinquent payers can jeopardize your liquidity, and you can’t allow that to happen.

If your company is experiencing financial difficulties, contact one of our licensed insolvency trustees without further delay. They’ll help you find solutions so you can look to the future with greater peace of mind. The first meeting is free.