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Sometimes, no matter what precautions you take or how well you manage your receivables, there are just some customers that won’t pay on time, even if at all. But, there’s still hope for you to get the money you deserve.

Here are 5 ways to deal with late paying customers:

1. Factor the Invoice 

A great option to get cash for your unpaid invoices is by factoring your invoice. When you factor your invoices, a “factor” buys these invoices at a discount, and then collects the full payment from your customer. This gives you cash in your hand immediately. The factor is paying you a percentage of the invoice paid value upfront, known as the advance (which is usually around 70-85% the invoice amount). The factor then holds onto the remainder, which will be paid to you upon fulfillment of the invoice, minus the charges or fees of the factors.

2. File a Lien

Mechanics liens are a special instrument for those businesses who are construction contractors or suppliers. “If a supplier or contractor furnishes services or materials to a construction project and is not paid, that supplier or contractor can generally file a mechanics lien to ‘secure’ the debt”, says Scott Wolfe Jr.  In other words, the property becomes collateral to guarantee payment. A lien doesn’t send a property off to auction, but is the action to claim the job as collateral. In short, it puts your business in a “collectable position.”

3. Call a Lawyer 

A good way to get a seriously delinquent account to pay is to have an attorney contact the debtor. As Justin Tenuto from Rocket Lawyer points out, “Sometimes, a professional correspondence from a practicing attorney will motivate your debtor to pay up. After all, debtors don’t want to end up before a judge, explaining their motives for not paying you.” If you think your customer needs just a little push, hiring a lawyer to make contact can be the key. However, be sure to perform a cost-benefit analysis to make sure the lawyer’s fee isn’t more than the debt you are looking to collect.

4. Hire a Collection Agency 

Sometimes when you know there is no hope for a customer, it’s time to send them to a collection agency. Although collection agencies have a bad rap, the actions of some does not define them all. When you feel it’s time to send an account to collection, it’s all about performing the right due diligence on an agency. Be sure to ask the right questions when searching for an agency, so you’ll know they’ll treat your customers well. When you send your account to collections, be aware you will only pay if they collect. However, their fees run high. If they are successful, sometimes you can end up paying them 30% - 50% of the invoice. Only use a collection agency as a last resort.

5. Write It Off 

If you determine a receivable is impossible to collect, you can write it off. The IRS requires the direct write-off method for receivables, and to reiterate, it can only be written off once you stop actively collecting. In fact, you will only need to report an estimate of how much you don’t think you’ll collect. You don’t have to guess who won’t pay you or what the exact amount that you aren’t paid will be. Just always use a conservative estimate. So, when do you decide it’s time to give up? Look at how long the account has been past due. If it’s older than 6 months, it’s safe to say it can’t be collected. Nothing's worse than a customer that won’t pay. However, if you get stuck with a deadbeat, remember your options!

About the Author(s)

Meredith Wood

Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer.

Editor-in-Chief, Fundera

Key Topics

Deadbeat Customer