In most cases, there are 3 basic reasons a customer doesn’t pay: either it can’t pay, it doesn’t want to, or it has a genuine dispute. How you deal with nonpayment should depend on the reason. This article will discuss a practical approach to collecting unpaid invoices in each situation.
Collecting Unpaid Invoices When The Customer Can’t Pay
When the customer wants to pay but can’t, you need to know the circumstances. Whether it’s having a temporary issue or in danger of failing may drive your decision to settle or sue.
If the customer’s just having temporary cash flow issues, and isn’t in any particular danger, consider offering a long payout in exchange for full payment. If you don’t want to police a payment plan, consider taking less to shorten the payout.
But if the customer’s about to fail, you could be racing for assets against other creditors. In that case, you either want to settle for an immediate payment or sue immediately, hope for a default judgment and aggressively pursue assets to satisfy it.
Collecting Unpaid Invoices When The Customer Doesn’t Want To Pay
The customer who doesn’t feel like paying is betting you won’t sue, or is choosing to cross that bridge when it gets there. In that case, collecting unpaid invoices depends on your willingness to sue the customer. Until you do, it has no reason to pay you.
Collecting Unpaid Invoices When There’s A Genuine Dispute
If you believe the customer’s acting in good faith, even if you disagree with it, consider a compromise before the dispute escalates. Litigation can be expensive and uncertain, and the only guarantee is that it burns bridges. Showing the customer that you’re reasonable and value its concerns is likely to strengthen your relationship.
Of course, the customer has to be reasonable too. But if you’re fair with each other, resolving the dispute amicably can preserve the relationship and pay for itself many times in future sales.
Understanding the customer’s reasons for nonpayment will help you determine whether to sue or settle. And where ability to pay is the issue, you need information about the customer to make an informed decision.
For more information on collecting unpaid invoices, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.