A few months ago, one of my relatives told me a story and asked for my help financially to get him out of a difficult situation: He had taken a small amount of money for a year from some investors. Unfortunately, in few months—not the agreed upon year—they asked him to return all their money, plus a percentage of the original amount. He couldn’t repay them, and they started yelling at him. They then called him every day making threats and more to the point that he became scared for his life.
His story prompted me to write about this topic: How do you deal with clients who refuse to pay you? In particular, I’d like to share my advice on how to handle such situations.
Keep emotions out of the picture
One of the most important recommendations I can give you up front—never get emotional. People make a lot of regrettable mistakes when they let their emotions take over and react too quickly. They yell, swear and threaten their clients. This approach rarely leads to good outcomes. Even if they are in the wrong, take a deep breath, stay calm, and take steps that may lead to a better outcome.
What’s their reason?
The first step? Figure out why they aren’t paying you. As I explained, my relative’s story was completely different—his investors were not following the contract terms by asking for their money early. In my entrepreneurial career, I have had many clients who didn’t pay me and for a variety of reasons. Unfortunately, sometimes people start working with you without having any money or with no intention to pay.
Here are most common reasons that I’ve found for why clients don’t pay:
- They simply don’t have money
- Didn’t like the service or the product
- Decided to spend the money they owe you on something else
In all cases, it’s annoying, and it takes your time and energy to figure out what to do to resolve the issue. I guess it’s just an unfortunate part of being in business for yourself.
Keep a two-way line of communication open
The second step is to start communicating. Open, kind, and honest communication can be the key to reaching a mutually satisfying resolution. You don’t need to demand that they pay now.
If they didn’t pay you simply because they don’t have money, try to come up with a solution like paying you over time. Schedule payments in amounts they can afford on a schedule that is realistic. If a client proposes different terms—for example, a longer period to repay you, don’t automatically say no. Be kind, and find something that works for both of you. If you make something that will shut out that client completely, you will lose everything and the client.
If the reason they refuse to pay is dissatisfaction with the quality of your work or the product, listen to what they believe is wrong or not up to their expectations and figure out what you can do to remedy the issue or issues. Once you’ve figured out a fix for the problem, then deliver it as quickly as you can.
Always try to make the communication more personal. Explain your situation and let them understand how you feel. You are a small business owner or just work for yourself. Or you don’t have a big profit, and the money they won’t pay will hurt you. You have done everything on your side, and when you signed a contract, they knew what they were signing and agreed on the price. Make them feel guilty but don’t shame them. Most of the time this will be enough. The client will understand, apologize, and pay you the remaining money they owe.
While none of these scenarios are an ideal situation for you or your business, it is better to work with the client so that they eventually pay you.
My experience with a client who refused to pay me money
I once had a client who refused to pay me a large five-digit sum. I had a little marketing agency that helped others promote their products. Because this client refused to pay, I didn’t have the money I needed to pay people to whom I had made financial commitments. This made the situation extremely stressful for me.
I handled it by speaking with them calmly and learned that their business partners owed them money to the tune of a seven-digit figure. They were considering having to file bankruptcy, but if they filed bankruptcy, I lost and they lost. It was in our mutual interest to try to figure out a workable solution.
We spoke and agreed that they would start paying me small amounts over time. In return, I would continue promoting some of their products to help them continue getting income. It took some time to work out the agreement, and while it wasn’t easy, eventually they paid me back everything. As time went on, I made huge profits with them, and they always paid me everything without any issue. A couple of times I needed money, and they even paid me upfront.
This is how I won a client, and then we even became friends.
Of course, the best situation is when you get 100% of the payment up front. I would love to hear your stories on how customers refused to pay you and how you managed to resolve the issue.