In today's episode of Unsure? Insure! we talk about a situation that many freelancers experience. Non-paying clients. I want to specifically focus on those of you—like the freelancer in today’s episode—who may be asking, “Is it time to threaten to sue my client?”.
Here's the 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. There are alternative methods to handle non-paying clients and it is something your insurance can potentially help you with.
Step one: payment templates
The first thing to do is send late payment reminders. This avoids the conflict that comes with making a legal threat, but shows you're taking a firm stance in recovering what you're owed.
There are templates available to you if you have legal expenses insurance. These templates are professionally written and are likelier to receive a response than a friendly reminder.
Template one is a debt collection letter demanding payment for an overdue invoice. The first letter you send will highlight the total outstanding debt, including interest if applicable.
The second template would only be sent if you've had no reaction from the client in response to the previous letter. In this letter there's a firm reminder of the outstanding debt and that failing to respond will force you to consider starting 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.
Hopefully the first or second letter is enough to prompt a response from your client.
Step two: debt recovery service
The second option is to use the debt recovery service included with your legal expenses insurance. If a client has went quiet and you've exhausted your usual tactics with overdue invoices, an expert lawyer will formally chase your debt for you.
It is a formal process getting a lawyer involved. Going down this route can complicate client relationships, but do you want to continue to have a working relationship with somebody who doesn’t pay you?
We find that having a third-party formally chase your debt is a successful method to recover your money, but it may be an option you consider as a last resort.
Whatever stance you take, 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 an audit trail that shows you’ve tried to recover payment unsuccessfully.
Step three: small claims court
If you don’t have insurance, you can pursue overdue payments through small claims court.
It's worthwhile remembering that small claims court, and any of the tactics we've outlined, isn't always successful.
One freelancer we spoke to began the process of small claims court in September, which involved a payment to apply for a summons. 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 (which was at a further cost). This wasn’t successful.
The 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 doesn’t always end in a positive outcome even if it should. Even if you deserve to be paid for the work you’ve done. Even if that’s what’s fair.
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?
To end this on a more positive note, the freelancer did say they learned valuable lessons for future projects. Projects now always have signed contracts, preliminary payments, strict payment deadlines, sign off milestones and they have insurance.
Again, 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:
- Send late payment reminders using the professionally written templates you have access to as part of your legal expenses insurance
- If the late payment reminders don’t work, consider using the debt recovery service that’s included with your legal expenses insurance where 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 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