When Customers Don't Pay: Tips for Collecting Your Money

Linda Jenkins, August 08 2014

First of all, this article is not for every business owner. If you run an online business, or a retail business, you are most likely collecting the money up front before delivering the product to your customer. However, if you have a service business, such as an accounting firm, you typically bill your client after the service is rendered. This can be a problem if your customer decides not to pay.


An ounce of prevention goes a long way. You can greatly reduce the chances of needing to actively collect money by ensuring that a few key procedures are in place first. This is important for clarity and legal reasons. For example, make sure that:

  • Customers give you a deposit if at all possible
  • Customers sign a service agreement before services are rendered
  • Invoices clearly define when payments are due
  • Statements clearly define interest and services charges
  • Statements are sent out to the client on a regular schedule


Beyond this, you will need to stay on top of receivables by running regular reports from your accounting software. For payment terms of net 30, run a report on receivables that have gone over the 60-day aging threshold. If your software falls short, consider using something like this accounts receivable spreadsheet. Call the customer to "find out when we will receive the balance". Never ask if there was a problem with the service - the customer will tell you if there was, but you want to remain in a position of strength rather than inviting complaints. From this position you have various options. If there was a problem with the service, you can negotiate a discount on the balance. If the client simply forgot to pay the invoice, you can collect the money by credit card over the phone. If you cannot reach the client, use a red stamp to mark the invoice "Past Due" and mail or scan/email a copy to the client.

In addition, you should update your contact management software or otherwise keep track of your contact with clients that have overdue accounts. This comes in handy to document your efforts, identify repeat offenders, and have something to reference should clients call back at a later date.

If you are following these procedures and still have clients that carry significant balances over the 90-day threshold, then you need to consider formal collections action. First, notify your client that their account is seriously overdue, and they are headed towards collections via a letter or e-mail communication similar to the following:


" Month, Date, Year

Mr. Robert Doe
Doe's Widgets, Inc.
1334 Business Way
Somewhere, Somestate 56677

Re: Account ID# 34XXY


Dear Mr. Doe,

Despite our numerous attempts to contact you in regards to your account, we have received no payments toward your outstanding balance of $4500. We will be referring your account to our collections attorney with 15 days of this correspondence. If you wish to avoid collections action, please contact me to work out a payment agreement at the number listed below.

Jane Swanson
Office Manager
555-555-9999 "

Approximately 80% of clients that receive such a letter will call or send in payment. For the other 20%, gather copies of agreements, e-mails, letters and current account balances and send them off to collections. If you do not currently have a collections attorney, find one either through referral or by Googling "collections attorney" plus your city and state. Most collections attorneys work on a contingency basis and are well worth the fees charged (usually somewhere around 30% of what is collected) since they typically are able to effectively negotiate payment agreements or manage litigation on your behalf.