In episode one of Unsure? Insure! we cover what the next steps are if a client isn't paying you.
Your client isn’t paying you, so what are the next steps to take? It’s a common problem with freelancing, but how do you deal with it in a way that increases your chance of getting paid for the work you have done?
Firstly, always employ your usual credit control procedures. Obviously that includes sending reminders, enforcing late payment charges, or refusing to deliver work until the invoice is settled. Having these basic clauses in your contract will go a long way in helping you get paid.
If that doesn’t work, ask yourself; 'why isn’t my client paying me?'. The answer to this can determine if it’s a situation your insurance can help you with.
If your client is unhappy with the work you’ve done, your professional indemnity insurance might be able to help. Their dissatisfaction with your work does have to be accompanied with some kind of threat or claim. For example, “We’re not happy with the work you’ve done. We’re not paying you and if you continue to pursue payment we’ll take things further”.
Every policy is different so speak to your insurer, but the mitigation costs clause within professional indemnity insurance means the insurer will pay you the amount owed to you by your client if the insurer believes this will avoid a claim for a greater amount.
Mitigation Costs Clause
If Your client is dissatisfied with Your Professional Services rendered, refuses to pay for any or all of Your fees and threatens to bring a Claim against You, We will pay You the amount owed to You by Your client if:
- it is possible to settle the dispute with Your Client by You agreeing not to press for the disputed amount; and
- We believe this will avoid a Claim covered under this Cover for a greater amount; and
- We have given Our written approval to settling in this way and for this amount.
If a client isn’t paying for other reasons, there is another insurance product that might be able to help. It’s called legal expenses and it has a debt recovery clause where a solicitor will chase your debt for you. Here’s how it works:
- You provide the necessary information to the insurer; the name of the client, amount owed to you, professional services provided, how many days the payment is overdue
- The insurer assigns a solicitor and if the solicitor believes they have 50%+ chance of recovering your debt they’ll pursue the client for you
We have had cases where the solicitor has done a credit check and it turns out the client has no money, in which they won’t pursue the payment because it’s unlikely they’ll be able to recover any money. However, we do find that having someone else call or send a letter to your client on your behalf sends a persuasive message and can spur them into paying.
If you don’t have insurance, don’t panic. There is, of course, small claims court. Having spoken to a lot of freelancers who have went this route the general consensus is that there is a lot of paperwork and it is time consuming, but it's worth it because they’ve had success with it.
You should ask yourself if the amount you're owed is worth your time and energy going through small claim’s court. It could be that it isn’t a lot of money and you’re better off focusing on your good clients.
To recap, if a client isn’t paying you the next steps should be;
- Sending gentle reminders
- Enforcing late payment charges
- Holding onto the deliverables until payment has been settled
- Understanding why they aren’t paying. If they’re unhappy with the work and have followed this with a claim or threat, your professional indemnity insurance might be able to help you. If it's for another reason, use the debt recovery service your legal expenses insurance will provide
- If you’re uninsured or your insurance won’t cover you, pursue the payment through small claims court. However, be tactical about it. Is the value of the invoice worth your time and energy?