If a client does not pay an invoice, take immediate action by sending polite reminders, followed by a formal, written demand letter, applying late fees, and ultimately, considering small claims court, a debt collection agency, or invoice factoring. Halt work on current projects to limit losses, and always maintain detailed records of all communication and contracts to support your case.
Getting a Client to Pay an Invoice after Nonpayment
Jurisdiction and venue: You'll need to file in the correct court based on where the business was conducted or where the contract was signed. Amount in dispute: According to the California Courts Self-Help Guide, if the unpaid invoice is under $12,500, you may qualify for small claims court.
The claim notice informs the debtor that if they fail to respond to it and fail to pay the debt then the creditor (you) is free to apply to the court for a judgment against them.
No, an invoice will not usually hold up in court. An invoice is simply a request for payment, but it's not a legal document and therefore not legally binding. You may be able to legally enforce an invoice if you also have a valid contract.
Use a debt collection agency
If you can't recover the debt after friendly reminders, informal negotiations and a letter of demand, you might decide to engage a debt collection service. Let your customer know that you plan to use a debt collector. This may prompt them to pay the debt first.
Every unpaid invoice is a direct threat to cash flow and business stability. A polite reminder may work once, but persistent non-payment inevitably becomes a legal problem.
The sending of a letter before action or a statutory demand may in many cases be a cost effective way to resolve the dispute in a timely fashion and avoid the need for court proceedings. If, however, this does not bring about recovery of the sum owed, court action to recover the monies owed may need to be considered.
It is, in effect a statute of limitations that applies to the payment of invoices and how long a creditor can chase a debtor for non-payment of an invoice. It might surprise many companies that unpaid invoices, under a simple contract, can be legitimately chased for up to 6 years.
Be persistent: Send friendly reminders
According to Small Business, it's okay to send monthly bills that clearly show overdue payments. Calling the customer once a week might also work, but do be aware of your state's collection laws and the fine line when persistent becomes too persistent.
False invoicing may also be considered invoice fraud. This occurs when a business sends an invoice to a customer to pay for goods or services that the business is aware that the customer did not purchase.
The "777 rule" in debt collection, also known as the 7-in-7 rule, is a CFPB regulation (Regulation F) limiting calls: collectors can't call more than 7 times in 7 days for a specific debt, nor call within 7 days of a conversation about that debt. It aims to prevent harassment, applying to calls, texts, and emails, though exceptions exist, and the presumption of compliance can be rebutted by aggressive call patterns like rapid succession or highly concentrated calls.
You may go and report this matter to the police but they will probably tell you it is a civil matter and they can't handle it. Unless the matter also involves violence or an immediate threat there is really not much that the police can do for you if someone owes you money on a loan.
How to Collect Payment from Clients That Aren't Paying
A business owner can set their own payment terms when it comes to invoicing. They can choose to offer discounts for early payments and payment upfront. If no agreed-upon payment date has been established, a customer must pay a company within 30 days of receiving an invoice or the goods or service.
According to California Code of Civil Procedure § 337(1), the statute of limitations for a written contract is four years. Under § 339(1), the limit for an oral contract is two years.
How long does an unpaid invoice remain valid for collection? Under the Limitation Act 1980, invoices remain valid for up to six years from the date the customer last acknowledged the debt or made a partial payment.
If you have an unpaid invoice, here are some steps you can take to try and resolve the situation:
How to Collect Money From Clients Who Won't Pay
Tips for collecting outstanding and unpaid invoices
What to do if a customer doesn't pay
Payment - obligations
Unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service. You can use a statutory demand to formally request payment of what you're owed.
Craft a polite email or phone call reminding your client about the outstanding invoice. Be sure to include clear details like the invoice number. Make it easy for them to settle the bill by mentioning your available payment methods, such as online portals, mail-in checks, or credit card payments via a phone call.
Invoice fraud is a scam in which fraudsters trick individuals or businesses into paying for goods or services that were never ordered or delivered. It typically involves fake or manipulated invoices with altered payment details. Scams rely on exploiting trust, oversight, or weaknesses in payment processes.