What are my options if a client refuses to pay an invoice?

Dealing with Unpaid Invoices: Your Next Steps

Picture this: You’ve delivered your work, sent the invoice, and now the payment deadline has come and gone—yet, your client remains silent. Frustrating, right? Unfortunately, unpaid invoices are a common challenge for freelancers, small businesses, and even large companies. But what can you do when a client refuses to pay?

Instead of immediately jumping to legal action, there are several steps you can take to recover your money effectively. In this guide, we’ll walk you through your options, from polite reminders to legal recourse.

1. Send a Friendly Payment Reminder

Sometimes, late payments are simply due to oversight. Before assuming the worst, send a polite reminder:

• Re-send the invoice and highlight the due date.
• Mention any late fees (if applicable) outlined in your contract.
• Use a professional but firm tone, such as: “Hi [Client’s Name], I hope you’re doing well. I wanted to follow up on invoice #[Invoice Number], which was due on [Due Date]. Please let me know if you need any assistance with processing the payment. Thank you!”

Most clients will settle their balance once reminded.

2. Offer Payment Plan Options

If the client claims financial difficulties, you might consider offering a payment plan. Breaking the invoice into smaller, manageable payments can encourage them to pay rather than ignore the debt altogether.

• Suggest splitting the total into two or three payments.
• Document the agreement in writing to ensure clarity.
• Use a contract addendum to formalize new payment terms.

3. Apply Late Fees or Interest Charges

If your contract includes late fees, now’s the time to enforce them. Late fees incentivize clients to pay on time and compensate you for the delay.

• State the late fee policy clearly in your invoice reminders.
• Common late fees range from 1-5% per month on the overdue amount.
• If you didn’t include late fees in your contract, consider adding them for future clients.
• American Bar Association – Small Business Law

4. Stop Work Until Payment is Received

If the client still owes you money and continues to request services, halt all work immediately. Politely but firmly communicate:

• “I would love to continue working on your project, but unfortunately, I can’t proceed until the outstanding invoice #[Invoice Number] is settled.”
• If you’re working on a long-term project, remind them that payment delays could affect deadlines.

This tactic often prompts quick payment, especially if they rely on your services.

5. Send a Formal Demand Letter

If reminders and negotiations fail, escalate the situation with a formal demand letter. This is a written notice requesting immediate payment and warning of legal consequences if ignored.

Your demand letter should include:

• The invoice details (amount, due date, and services provided).
• Previous attempts to collect the payment.
• A deadline (e.g., 7-10 days) before taking legal action.
• A clear statement that legal action may follow.

Consider sending this via certified mail for proof of delivery.

6. Work with a Collections Agency

For significantly overdue invoices (usually 90+ days), a collections agency can step in to recover the debt. While they take a percentage (typically 10-50%), they can be effective when other methods fail.

Before hiring an agency:

• Ensure they comply with the Fair Debt Collection Practices Act (FDCPA).
• Choose an agency experienced in your industry.

7. Take Legal Action

If all else fails, legal action may be necessary. Your options include:

Small Claims Court

• Ideal for invoices under $10,000 (varies by state).
• No lawyer required; you present your case with supporting evidence (contract, emails, invoice, payment reminders).

Hire an Attorney

• Best for larger debts or complex disputes.
• An attorney can draft a demand letter, negotiate on your behalf, or file a lawsuit.

File a Lien or Legal Complaint

• For construction or service-based work, filing a mechanic’s lien may help secure payment.
• Some industries allow you to report delinquent clients to credit bureaus.

How to Prevent Future Unpaid Invoices

Avoiding payment disputes starts with clear policies and proactive measures:

• Use Contracts: Always outline payment terms, due dates, and late fees.
• Request Upfront Deposits: For large projects, require 30-50% upfront.
• Automate Invoices & Reminders: Use platforms like QuickBooks, FreshBooks, or PayPal.
• Vet Clients Before Signing Agreements: Research their business reputation and ask for references if necessary.

FAQs About Unpaid Invoices

1. Can I charge interest on a late invoice?

Yes, if it was agreed upon in your contract. Typical interest rates range from 1-5% per month.

2. Can I report a non-paying client to credit bureaus?

Yes, if your business is registered to do so. Some industries have trade credit reporting options.

3. How long should I wait before taking legal action?

Generally, 30-90 days past the due date, depending on the client’s response and your business policies.

4. Can I refuse to work with a client who hasn’t paid?

Absolutely! You’re not obligated to continue providing services if invoices remain unpaid.

5. Should I accept partial payment?

If it’s the only option, yes—but ensure the agreement is in writing and outlines a clear final payment date.

U.S. Small Business Administration (SBA)

Final Thoughts: Take Control of Your Payments

Unpaid invoices can be stressful, but with the right approach, you can recover your money and prevent future issues. From friendly reminders to legal action, each step moves you closer to resolution.

Need help drafting a strong contract? Consider consulting a legal professional or using online contract templates from LegalZoom or Rocket Lawyer.