How to handle Clients who won't pay
How to handle clients that do not pay
When you are running a small business, you often depend on the payment of each invoice for the survival of your business. You expect to be paid for your labour, product or services. Unfortunately, that is not always the case. More often than you’d like, you deal with clients who do not pay for one reason or another.
Prevention is always better than cure. It is best that you try and avoid your clients not paying to begin with. The time, money and energy you will spend on chasing a non-paying client is so much that you want to avoid it at all costs. It is a messy process that you want to avoid the issue altogether by entering into an airtight agreement with your clients.
Even if you are entering into an agreement with the most trusted people you know or even your friends you should always have a written contract in place that aims to ensure your clients pay by all means possible.
Asking for a deposit is a good idea because it ensures that you get a portion of your invoice before you start rendering services to your client. If you ask for a portion of the payment upfront, you're already at an advantage. Asking for a deposit or retainer is common for freelancers when negotiating with clients and will help cover the expenses or time that you already put into a project.
Your contracts should include a clear payment schedule that clearly describes when and how much your client will pay you. Having that clarity prevents your client from innocently ‘forgetting’ to pay you and makes it easier should your client not pay you and claim that they are not in breach. Your payment deadlines should very clear and you should include a late payment policy that stipulates how much interest will be charged on late payments.
For instance, if your client is aware they owe you payment for an unpaid invoice, they'll be less likely to flake – and if they do, they'll be forced to pay interest. This is a guarantee that is only put in place by a good contract.
If you do end up in the dreaded position where your clients still have not paid up your invoices despite all attempts to try and prevent this. Here are some of the things you need to do.
Firstly, you need to follow up on your payments. Don't hesitate to send out an email if the invoice has not been paid by the agreed-upon date. There's always a possibility that the invoice was lost or misplaced. Maybe the client was on vacation or had a family emergency. You shouldn't instantly assume that the client is intentionally avoiding paying you. Send them a friendly yet firm email reminding them that the invoice is past due and you'd like to resolve the issue as soon as possible. Also ask if they have any concerns with the product or service that you provided, or if they need assistance with the payment process.
If this does not work after many attempts, you should consider drafting an Acknowledgement of Debt.
An acknowledgement of debt (AOD) is when a debtor acknowledges his/her debt obligations. In this case your client becomes the debtor. The client admits that he/she owes a sum of money to the creditor and undertakes to repay the amount on terms agreed upon between the parties involved.
An AOD is of great value should the debtor still default on their payments and a summons is required.
An AOD requires the following in order to be valid and enforceable:
Client’s name and ID number eg. I, the undersigned, Name Surname- ID:123456789 …
Client’s name and details, as well as the amount owing.
An agreement that clearly states when, where and how the Client will be paying for the amount outstanding, as well as an appropriate interest rate.
The banking details and a reference number will be provided in the document.
The debtor then needs to fill in their latest address in case a summons needs to be issued in the future.
Terms and consequences are noted and explained.
The client will be made aware of Section 109 (1) of the Magistrate’s Court Act No 32 of 1944 which provides that the client must notify of any change of the work or home address within fourteen (14) days of such change, failing which the client can be liable for imprisonment for thirty (30) days, or periodic imprisonment of 720 hours.
This agreement supersedes any other arrangements that may have been entered into or concluded between you and your client in connection with the outstanding amount.
The client then signs that they agree to everything laid out in the letter.
An AOD requires no more than the signed document for it to be legally valid and binding on the client.
Apart from the frustration of dealing with an unpaid debt that perpetuates for months on end, there’s a bigger problem you may face which is Prescription.
Prescription is when outstanding debts are no longer due after the passing of prescribed time periods. Ordinarily, a claim prescribes, or expires, after three years. (There are a few exceptions to this rule, eg. mortgage bonds are longer.) Once the three years is up you no longer have a valid claim and your client can raise prescription, which will stop your case in its tracks.
A signed Acknowledgement of Debt helps push back prescription and continuous communication with your client regarding the debt, in the form of notices, reminders etc will also renew the prescription period.
At Hello Contract, we have taken into account all of the above considerations when drafting all your contracts to prevent non-paying clients. You can create your own contract that is perfectly suited to your needs as a freelancer. We also have a great and affordable Acknowledgement of Debt ready for you, should you require one. All that you need to do is select the appropriate document that you would like to generate, answer a few questions, and our document generation software will automatically compile your documents for you here.(insert link)
