Almost every business owner has faced the same problem at one time or another. The business provides a product or service to a customer, the business invoices the customer for payment and the business never receives payment. This situation is frustrating at best and a threat to the business’s profitability and continued existence at worst.
However, if you provided a product or service to a customer with the agreement that you would receive payment in return then you are legally entitled to payment and there are steps that you can take when faced with this challenging situation. It is important to understand what you can legally do, and what you cannot do, if you have a customer who doesn’t pay you. In order to protect your business from nonpaying customers, you might consider:
· Creating your First Invoice Carefully. Your invoice is a contract and should carefully explain the required terms of payment. Most invoices include a payment due date. After that, you may charge appropriate late fees or interest on the uncollected amount due. Your invoice should specify what the late penalties are and include a phone number for your business in case the customer needs to discuss payment terms with you.
· Sending Follow up Invoices. If you do not receive payment within the required time frame then you may send a follow up invoice. If the bill was not paid because of an honest mistake, for instance if it got misfiled or never arrived, then a second invoice will likely result in a payment received. Make sure to mark the invoice as Second Invoice (or something similar) and include the date of the first invoice so that the customer knows that the bill needs to be paid upon receipt.
· Making Follow up Phone calls. Assertive phone calls are often an effective way to receive payment. However, you must make sure that you are following state and federal laws when you make the calls. As general rules, you should only contact the person who owes the debt and not a relative or employer of such person, you should only call the person between 9 am and 8 pm, you should always be truthful in your discussions and you should never be threatening to the customer.
· Using a Collection Agency. A collection agency can take over the collection attempts for you so that you and your employees have the time to devote to the other work of the business. If you decide to hire a collection agency it is important to thoroughly review the agency by requesting references and checking for complaints with your state attorney general’s office or local better business bureau office. Your contract with the collection agency should be explicit in terms of what the agency is authorized to do on your behalf and what the agency will be paid.
· Hiring a lawyer. Your lawyer can help you negotiate with the customer and represent you in any legal proceedings attempting to collect money from the customer.
· Considering Tax Implication. If you already counted the amount invoiced as taxable income then you may be able to deduct unpaid invoices that you decide to forgive rather than collect.
Unpaid invoices are a big problem for all businesses, especially small businesses. If you have any questions about collecting monies owed to you then it is important to contact a business law attorney in your state for more information.
The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.