Collecting Client Accounts

Collecting Client Accounts

Getting slow-paying clients to cough up what they owe is frustrating and a big drain on cash flow, but there are ways to nudge a client into paying.
 
Reminder Invoice
 
One of the least confrontational things you can do is to send a "friendly" reminder invoice that you haven't yet received payment. Adding interest and late fees onto the amount owed is another way to get your client’s attention. You’ll need to ensure compliance with state usury laws when doing so, however.
 
Formal Demand Letter
 
If your client doesn't respond to friendly reminders, a formal written demand for payment can work wonders, especially if it includes a warning that services will be discontinued if you don't receive payment. Rules of Professional Responsibility vary from state to state with regard to withdrawing an appearance if counsel is of record, so you should be sure to review your state’s law prior to sending a withdrawal notice.
 
Personal Contact with the Client
 
As long as you follow state laws on collecting overdue bills, you might consider calling or personally visiting your client. You can then privately ask when the client will be making payment on the overdue bill.
 
Hiring a Collection Agency
 
These agencies take a percentage of the amount you're owed after it's collected. Collection agents often use abrasive methods of collecting, so you'll want to think twice about sending a collection agent to collect a debt from someone whose future business you value. You may also want may want to consider the impact on your reputation in the professional community this course of action might have.
 
The Fair Debt Collection Practices Act prevents collection agencies from
 
  • Using threats of violence or harm
  • Publishing a list of debtors (except to a credit bureau)
  • Using obscene or profane language
  • Repeatedly using the phone to annoy someone
  • Falsely implying that they are attorneys, government representatives
  • Suggesting that papers sent to debtors are legal documents when they aren't
  • Misrepresenting the amount of debt owed or collecting more than is owed
  • Suggesting they will garnish, attach or sell property or wages, unless they intend to do so and it is legal to do so 
If you decide to use a collection agency,
  • Get your agreement, especially as to how much and when they will be paid, in writing
  • Ask for references
  • Check the agency out with the local Better Business Bureau and your state's Attorney General's Office to see if there are complaints about the way in which the agency goes about collecting debts 
Filing Suit
 
For smaller debts, it may make sense to file the claim in Small Claims Court. For larger debts, you may be required to file in the civil division of the state’s trial level court. In either case, you should consider the following: 
  • How much out-of-pocket expenses - such as filing fees - will cut into any money you collect
  • How much of your valuable time will be spent pursuing the claim
  • Whether the nonpaying client has any defense that may convince a judge he or she doesn't owe the money
  • The possibility of the client’s raising professional malpractice as a defense
  • How difficult it will be to collect on a judgment
  • Whether you want to do business with this client in the future
  • Any consequences a lawsuit may have on your relationship with other clients
If you decide a lawsuit isn't worth the effort, you'll want to refuse service to the nonpaying client. You may also wish to report the bad debt to credit reporting agencies. It may be possible to report the amount owed as a bad debt on your business tax return, depending on your method of accounting.