Let's talk about a situation that many freelancers experience. Non-paying clients. I want to specifically focus on those of you who may have reached the point you're asking, “Is it time to threaten to sue my client?”.
Here's the all too familiar story.
"I've been dealing with a deadbeat client for months. They keep making excuses about why they can’t pay me.
So far I’ve remained professional, but this approach doesn’t seem to be working. I’m now considering threatening to sue, but I'm nervous about this. I don’t like conflict and I’ve never sued anyone, but I feel the accommodating, professional approach has run its course.
I feel I have no choice but to initiate legal proceedings, but this could alter the course of the situation irrevocably."
Threatening clients with legal proceedings is a route nobody wants to take. We'll look at how you can handle non-paying clients by avoiding anything legal and if your insurance can help.
Step one: late payment reminders including a letter before action
The first thing to do is send late payment reminders. This shows you're taking a firm stance in recovering what you're owed, but the threat of court action is only implied in the third and final reminder (the letter before action).
The correct order to send your late payment reminders is as follows.
The first reminder is a debt collection letter demanding payment for an overdue invoice. The first letter you send will highlight the total outstanding debt, including any interest due on the overdue amounts.
The second template will be sent if you've had no reaction from the client in response to the previous one. In this letter there's a firm reminder of the outstanding debt and that failure to respond means you'll have to consider debt recovery proceedings.
The third and final template is a letter of claim (also known as a letter before action), which threatens court action if you don't receive a response. It also includes the information sheet, reply form and financial statement form that you need to give to the debtor before you can go to court.
In the majority of cases the first or second letter is enough to prompt a response from your client.
Get access to legal templates
There are a number of legal templates available as part of the legal expenses insurance product including late payment reminders. These templates are professionally written by lawyers and walk you through when and how to send them. The templates aren't just for late payments, but also include copyright and trademark agreements, NDA's, privacy policies and more.
Step two: debt recovery service
The second option is to use a debt recovery service. Don't let the name put you off—this can be an effective way of recovering what is owed. You can use:
- the debt recovery service included with your legal expenses insurance
- a local law firm that helps with debt recovery claims
- a digital debt collection agency
If a client has went quiet and you've exhausted your usual credit control tactics, an expert lawyer will formally chase your debt for you as part of the debt recovery service.
You can use the debt recovery service included with your legal expenses insurance or find a local law firm that can offer this service. The law firm will charge an upfront fee, which is usually advertised on their website, whereas the insurer's service is included in your monthly premium.
Getting a lawyer involved is a formal process. Going down this route can complicate client relationships so that's something you'll want to consider. However, if the payment dispute has reached the stage you're looking at debt collection it's unlikely you'll want to continue your working relationship with them.
Beyond your insurance services and local law firm, there are also digital-first debt collection agencies. Some of our customers have used Camelot Credit with success.
Whether you use the debt recovery service or a debt collection agency we find that having a third-party formally chase your debt is a successful method to recover your money, but it isn't a quick fix. These processes can take months.
Whichever method you choose, make sure you’re documenting everything. Have a contract that shows the client has agreed to payment terms and highlights what happens if those payment terms aren’t met. Have a statement of work so you can prove you've completed work to spec. Have an audit trail that shows you’ve tried to recover payment unsuccessfully. Document, document, document.
Step three: small claims court
If all else fails you can pursue overdue payments through small claims court or money claim online. This action is a last resort and, if you follow the above steps, it's unlikely you'll need to use these methods.
It's important to remember that small claims court isn't always successful.
One freelancer we spoke to began the process of small claims court in September. This freelancer attended court a total of five times between march (which is 6 months after the small claims court application) and June to state their case and show evidence.
Their client failed to attend the five summons meaning the freelancer was granted the full amount payable plus expenses and interest.
Even though that sounds like a win, the freelancer still needed to have sheriff officers enforce the procurement of the claim. This was at a further cost and wasn’t successful.
This freelancer is the first to admit that their experience isn’t like everybody else’s, but it was a 1.5 year battle of chasing an unpaid invoice, five court visits and expenses and losses they weren’t able to recover.
Because of this, the freelancer said that if faced with a similar situation again they would probably cut their losses and not pursue for a low amount. The mental stress, time wasted and overall anguish wasn’t worth it.
I say this to highlight that threatening to take someone to court and winning your case doesn’t always have a fair outcome even if it should. Even if you deserve to be paid for the work you’ve done.
But it's not all doom and gloom. We spoke to other freelancers who found small claims court spurred their client into paying. The threat of calling in reinforcements can send your client a strong message. You're serious about getting your money and are going to fight for it.
It’s a decision you have to weigh up—is the amount you're owed worth investing a lot of time and energy into pursuing? Only you know the answer.
To end this on a more positive note, those who have experienced payment disputes have learned valuable lessons for future projects and have managed to avoid further issues. Projects should always have signed contracts, preliminary payments, strict payment deadlines, sign off milestones and freelancers should carry insurance.
None of this guarantees projects won’t go wrong, but the combination of them and the ability to recognise red flags with new clients does make this freelancer sleep better at night.
So, to recap, here are some methods to approach a non-paying client without threatening to sue:
- Send late payment reminders. Professionally written templates like a letter before action are provided as part of your legal expenses insurance
- If the late payment reminders don’t work, consider using a debt recovery service. This is included with your legal expenses insurance and an expert lawyer will formally chase your debt for you
- Make sure you’ve documented everything from contracts where clients have agreed to payment terms, to having an audit trail of payment reminders you’ve sent
- Small claims court and money claim online is an option, but it doesn’t guarantee a positive outcome even if you win your case. It can be a long process where you’re not guaranteed payment. Weigh up whether it’s worth cutting your losses and learning from the experience
- To reduce the risk of non-paying clients, always have a signed contract, take a deposit, stick to strict payment deadlines, sign off milestones and get insured