Hey there, happy almost Halloween.
Talking spooky and scary today: What to do when a client won’t (or can’t) pay for services rendered. 👻
Every time we went through this when running our digital agency, we learned something knew.
Hopefully I can help you avoid some mistakes we made and rabbit holes I fell down.
Types of situations
These types of situations tend to fall into one of two buckets
- The client can’t pay: They simply don’t have the funds (or at least they say)
- The client won’t pay: They are disputing the work (quality, delivery etc)
Maybe they can’t pay right now. Maybe they are saying they will pay, but they require more work to be done to make up for missed timelines.
While the situations may differ, you can generally approach either in the same way.
Demand letters ✉️
Demand letters might be a good first option to try. They can cost around $305 (source: Contract Counsel). This can vary wildly though based on how complicated the matter is.
In our experience, these letters rarely work. They show your client that you are taking this seriously and it can be the first step to reaching some middle ground.
But that is usually the most value they provide.
Payment plans 💳
Payment plans can be an attractive solution to reach for. Especially if it seems like your client wants to pay, but doesn’t have the financial capital at the moment.
This worked for us on more than one occasion actually. Was it annoying to deal with chopping up a large sum into smaller invoices, yes. Did it result in the balance getting paid, in some cases, yes.
If your client is disputing your work, splitting the payment into smaller chunks with clear milestones might work. At this point, the writing is on the wall though. This client, and your relationship with them, isn’t going to end well. The opportunity cost of dealing with their BS will soon outweigh any $$ you could get.
Debt collection agencies 👔
Disclaimer: We never used debt collection agencies, but agency owners I know have and had some success.
What is a debt collection agency?
These are folks that will go out there and try to collect the debt owed for you. They are pros that can devote more attention to it than you can.
How much do they cost?
Usually between 20% to 40% of what they collect. This varies based on how old the debt is, the balance and a few other factors.
Debt collection agency hack
I wouldn’t suggest the collection agency route in general. But if you decide you want to do this, here is a hack I learned from another agency owner.
Here’s the trick:
Look for agencies near where you client is located. These agencies will be more incentizved, and a knock on the office door is much more powerful than an email.
What worked best for us ✅
Once your client emails you saying that they don’t plan to pay, you got one shot at an email to try to bring them back. Doing anything more is usually a waste of time. The opportunity cost of your time and mental health quickly surpasses the expected outcome.
This, unfortunately, is a part of the game that you signed up for. Running own agency isn’t supposed to easy, and this is one of the suckier parts. The sooner you can move on the sooner you can get back to making your current clients happy, and winning new contracts.