3 Ways to Handle a Deadbeat Client (Without Going to Court)

When you're at your wit's end with a client who won't pay, try these 3 tactics for getting your money without taking legal action.
President, Proximo, LLC
June 27, 2014

“I can’t believe it, but after all I did for them, they still refuse to pay!”

This frustrating phrase is uttered by thousands of small-business owners every day. While we do our best to meet or exceed our clients’ expectations, we're usually rewarded with referrals or renewals.

But sometimes we encounter a problem client who has no intention of paying. Ever. They have the money to pay—they just prefer to keep it.

Many small-business owners are so offended by this that they immediately want to sue once it’s made clear that non-payment is just part of the client's “cash management strategy.” But suing someone can be costly and time consuming, and it doesn’t guarantee payment. Just because a court says a company legally owes you money doesn’t mean the court can or will enforce that order—it’s your job to collect what you are owed.

Before triggering that nuclear option, there are some alternatives you can try that will make it clear you mean business but won’t lead to weeks or months of frustrating legal maneuvers. Some of these tactics are aggressive; using them most likely means you've already tried the nicer ways of asking for your money and have been refused. It also means you don’t expect to do business with this company in the future.

If you think suing your deadbeat client is your next, best option, make sure you've done these three things first:

1. Work With Your Trade Group

Not getting paid is a common problem among small businesses. That's why many trade and industry groups offer resources to help their members collect. Some provide access to legal advice at a discount rate or even for free as part of paid membership dues. Take advantage of these resources. Consult an attorney—not to proceed with a lawsuit but to ask them for strategies and tactics you can use that might get your client to pay up before you take them to court.

2. Use a Kill Switch

If you're a developer or designer, there are several techniques you can use to ensure that your delivered, unpaid work can’t be used by a client who refuses to pay you for your hard work. For creative design work, include embedded watermarks on all drafts. Only provide unmarked work after you've received a final payment. While clients are able to remove watermarks, it places them in an even more precarious situation if your contract doesn’t transfer intellectual property rights until a final payment's been received. If you're a programmer or designer, consider adding a kill switch like this one to your work. You can activate the kill switch remotely and disable your customer's website or software until you've received payment.

3. Go Social

If none of the other tactics you've tried have worked, communicate publicly with the company on its social media platforms requesting that they pay you for your work. Share details about how their non-payment has hurt your company and is unjust. Even shady companies worry about their social media presence and their reputation. That's because if they have a bad reputation, it will be difficult to fool others into working for them without getting paid upfront.

In 2012, I used this strategy to great success with a company I'd done business with that owed me thousands of dollars. After ignoring my calls and emails, I reached out to them via Facebook and LinkedIn. And something amazing happened: Potential customers started reaching out to me first before doing business with the company, and after explaining to them what happened, they would decide not to do business with that company. I would then email the company letting them now they had just lost a sale. When the lost sales added up to 10 times the amount of money they owed me, they started calling, emailing, apologizing and practically begging me to stop. I did, but only after they wired me the money they owed me.

After trying these three strategies, if you still don't have the money owed you, you always have the option of using the court system to claim what’s rightfully yours. Let's just hope you don't have to take it that far.

Read more articles and see exclusive videos in OPEN Forum’s special section on Managing Your Money.

Photo: Getty Images

President, Proximo, LLC