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Alex Denne
Head of Growth

What do you do if a client hasnt paid their invoice?

02-Jun-25
7 mins
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What to Do If a Client Hasn't Paid Their Invoice

As a business owner or service provider, dealing with unpaid invoices can be a frustrating and challenging situation. However, there are several steps you can take to increase the chances of getting paid and protect your business interests.

Review the Contract or Agreement

Before taking any action, review the contract or agreement you have with the client. Look for clauses that outline the payment terms, late fees, and any legal remedies available in case of non-payment. Understanding the terms of your agreement will help you determine the appropriate course of action.

Send a Polite Reminder

If the invoice is past due, start by sending a polite reminder to the client. This can be done via email, phone call, or even a physical letter. Explain that the invoice is overdue and request prompt payment. Sometimes, a gentle nudge is all that's needed to get the client to settle the outstanding balance.

Follow Up with a Formal Demand Letter

If the polite reminder fails to elicit a response or payment, it's time to escalate the matter. Send a formal demand letter to the client, clearly stating the amount owed, the due date, and the consequences of non-payment. This letter should be sent via certified mail or a trackable delivery service to ensure proof of receipt.

In your demand letter, you can include information about late fees or interest charges that may apply according to your contract or agreement. Additionally, you can outline the next steps you intend to take if payment is not received by a specified deadline, such as pursuing legal action or reporting the debt to credit bureaus.

Consider Negotiating a Payment Plan

If the client is facing financial difficulties, you may want to consider negotiating a payment plan. This can be a mutually beneficial solution, as it allows you to recover at least a portion of the outstanding balance while giving the client more time to pay. However, be sure to get any payment plan agreement in writing and signed by both parties.

Explore Alternative Dispute Resolution Options

If the client remains unresponsive or unwilling to pay, you may want to explore alternative dispute resolution options, such as mediation or arbitration. These processes can be more cost-effective and efficient than going to court, and they may help resolve the dispute without damaging the business relationship beyond repair.

You can find resources and templates for mediation and arbitration agreements on the .

Consider Legal Action

If all else fails, you may need to consider taking legal action to recover the unpaid invoice. This can involve filing a lawsuit in small claims court or hiring an attorney to pursue the matter in a higher court, depending on the amount owed.

Before taking legal action, weigh the potential costs and time commitment against the likelihood of recovering the debt. You may also want to consult with an attorney to understand your rights and the legal process involved. A common solution involves a Memorandum of Understanding.

The provides resources on debt collection and legal remedies for unpaid invoices.

Protect Your Business Moving Forward

While dealing with unpaid invoices can be challenging, it's essential to learn from the experience and take steps to protect your business in the future. Consider implementing stricter payment terms, requiring deposits or partial payments upfront, and thoroughly vetting new clients before extending credit.

Additionally, stay organized and keep detailed records of all invoices, payments, and communication with clients. This documentation can be invaluable if you need to pursue legal action or prove the validity of the debt.

By following these steps and remaining persistent yet professional, you can increase your chances of recovering unpaid invoices and maintain a healthy cash flow for your business.

Can you charge late fees?

Yes, you can charge late fees for unpaid invoices, but it's important to handle this carefully. First, review your contract or terms of service to ensure late fees are permitted. If not explicitly stated, you may still be able to charge reasonable fees, but check your state's laws on . A detailed Technology Licensing can clarify these points.

It's best practice to clearly communicate your late fee policy upfront to clients. Consider adding a line like "A late fee of X% will be charged on invoices past due by 30 days" to your invoices or terms. Be reasonable with the fee amount. prohibit excessive late fees. With proper notice and reasonable fees, you can incentivize timely payments while recouping costs.

When should you use a collection agency?

Hiring a collection agency should be a last resort after you've exhausted all other options to collect an unpaid invoice. First, send polite reminders and make personal contact with the client. If that fails, you can send a formal demand letter. If the client still doesn't pay after a reasonable time, you may consider taking legal action or hiring a collection agency.

Collection agencies typically charge a percentage of the debt collected, often 25-50%. They can be effective for larger debts, but the fees may not be worth it for smaller amounts. Before hiring an agency, review their practices and fees, and under the Fair Debt Collection Practices Act.

What legal actions can you take?

If a client hasn't paid their invoice despite repeated reminders, you may consider taking legal action. As a first step, you can send a formal demand letter stating the amount owed and a deadline for payment. If the client still doesn't pay, you can file a small claims court case for amounts under . For larger amounts, you may need to hire an attorney and file a lawsuit in civil court. Keep in mind that legal action should be a last resort, as it can be time-consuming and costly. also provides guidance on handling unpaid compensation.

At Ƶ, we make it easy to create bespoke legal documents that save time and provide the correct structure, no matter what legal document you need to create or review. Whether you're a business, lawyer or individual, try Ƶ today to simplify and streamline your legal drafting.

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