When your client stops paying you promptly

In these still uncertain times, it’s perhaps no surprise that we’re hearing the following more often: “I have a regular client that in the past has always been a prompt payer, but recently payment has slowed and now it has stopped completely.”

So what can you do if this happens to you as a contractor, freelance supplier or an independent consultant? We’ll firstly, writes Sid Home, founder of debt recovery specialist Safe Collections, don’t panic!

While it is true that payments slowing and stopping may be an indication of your client’s possible cash flow issues, it is, occasionally just an oversight or honest mistake. As a contractor you are likely to have a personal relationship with the client and you should try and use this to your advantage.

Use any direct access you have to call the client and try to get a firm commitment for payment. A genuine ‘hiccup’ will likely be easily rectified and should not translate into a lengthy wait for the missed payment. Do not agree to wait until the next monthly payment run and, if necessary, remind your customer (politely) that invoices are already overdue and you require payment “ASAP”.

If the client cannot or will not give a date, try to find out why. This answer, coupled with the cessation of regular payment, is often a very strong indicator that all is not right with your client’s cash flow, and there may be risks in continuing to work with them.

But what do you do if you suspect your client is struggling with insolvency?

Minimise your immediate risk

It is vital that you take immediate steps to minimise the disruption you will face if the worst happens. In the first instance you need to begin to minimise the risk your business faces by reducing the liability your client represents.

If the customer is unable to clear any unpaid invoices in a single payment, you might consider offering to accept instalments. Ideally on a weekly basis and with the aim of clearing any outstanding balance in four weeks or less. Monitor any agreement closely; missed payments can indicate serious problems.

If your work has potential resale value to others this should be given serious consideration. It can often be easier to resell work than to pursue an insolvent company.

Carefully consider future work

Although it can be tempting to continue to provide your services to a client that is continually promising payment or making sporadic instalments , do not allow yourself to work for no pay. In our experience this rarely ends well and often it means you, as a contractor, will lose considerably more in the event of non-payment or insolvency.

• Should your freelance business decide to continue to work with the client, it is imperative that you continue to reduce your risks wherever possible.

• Use your position to insist that any new work is conducted on a pro-forma basis with payments being made against outstanding invoice/s. This should continue until such time as any outstanding balance is paid, in full.

• If further credit is requested you need to think very, very carefully before agreeing. Purchase a credit report from a reputable provider as it will show any recent problems within the company, be especially vigilant for any record of recent County Court Judgments as this shows other suppliers have also had their demands for payment ignored.

If you do allow more credit, use the fact the customer wants/needs to retain your services to agree better payment terms. If they will not or can not agree to your terms, we would recommend that you not extend credit.

Monitor closely

When you have an agreement in place it must be monitored closely. You should exercise caution if any agreed payment is missed, if more than one is missed it should be treated as a sign that your customer is either insolvent or does not take your contribution seriously.

Either way, supply of all services must cease until such time as agreed instalments are up to date.

The bottom line

The above guidance is a tried and tested overview on how to deal with an existing customer that stops paying, but it not specific to your individual circumstances and should not be relied upon. Every situation and every client is different and you must use your own understanding and knowledge of the client to guide you.

Ceasing supply of services to a customer is a last resort, but it is something you must be willing to do if your invoices remain unpaid. Failure to know when to sever the relationship could not only seriously impact your business, but could endanger your entire future as a freelance or contract supplier.

If you are in any doubt and require professional help, you can contact us for a free consultation on your recovery options.

Article, and guidance within, provided by Sid Home and his team at Safe Collections, a debt recovery specialist for contractors and small businesses.

Editor’s Note: Further Reading –

When IT contractor clients don’t pay - a step-by-step guide

When your regular client regularly fails to pay

Contractors’ Questions: Does leaving me unpaid reduce their right to IP?