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Construction Insurance Bulletin

What To Do When A Client Doesn’t Pay An Invoice

By April 2, 2018No Comments

Unpaid invoices wreak havoc with your construction business. When a client doesn’t pay, you can take these steps.

Remain in Contact

If you don’t receive payment by the due date on the invoice, contact your client and ask if the work was done satisfactorily and when payment will be made. Sometimes, clients face emergencies or other challenges that prevent them from paying the full amount owed. In this case, arrange a payment plan or other alternative. However, if the client does not respond, contact them every day by phone, email or text until you receive payment.

Document your Case

Keep excellent records in case you need to contact collections or take the client to court. Your documentation should include your signed contract, expense receipts, invoices, and verbal and written communications with the client.

Hire a Collections Agency

Instead of calling the client every day, hire a collections agency to do this task for you. They typically charge a 30 percent fee to recover unpaid funds.

Send a Letter from your Lawyer

A simple letter from your lawyer with a threat to send the invoice to collections or take the client to court may prompt immediate payment.

Go to Court

You may be able to file a claim in small-claims court if your client owes between $2,000 and $7,500 and your state’s laws support this option. For higher amounts, consider further legal action. Remember, though, to weigh the legal fees against your unpaid invoice to ensure you don’t lose money going to court.

Remain Civil

Never complain about the client to others or on social media. Maintain a professional attitude as you protect your reputation and business.

Pursue Alternative Recovery Avenues

Even if the client doesn’t pay, you may be able to file an insurance claim to recover the unpaid invoice. Alternatively, ask your accountant if you can write off the bad debt on your next tax return.

Change Future Billing Practices

Use this hard lesson to change your future billing practices.

  1. Write an accurate proposal for each job. It outlines the exact work you will do, project timeline and payment expectations.
  2. Give the client time to examine the proposal and ask questions.
  3. Consider a staggered payment plan where you receive part of the payment upfront with the remainder due in installments.
  4. Require payment of each installment before you start the next part of the project.
  5. Sign a contract that clearly states the specific work you will do and payment due dates, late fees and the steps you will take to recover payment.

An unpaid invoice affects your construction business, so take these steps to get the payment you’re due.