How to Handle an Outstanding Customer Invoice

As a renovation contractor, you may called to deal with challenging situations involving customers. Despite taking the necessary precautions to avoid stumbling blocks, no one is immune to non-paying customers. This article highlights the proactive steps you can take beforehand to avoid getting tangled in messy situations, ensuring you’re always paid on time.

So, how should you handle a customer who skips out on their invoice? Here are some pointers to solve or prevent the issue.

How to Handle an Unpaid Customer Invoice

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Reminder Letter: Informal Outstanding Payment Recovery Attempt

First things first, send an informal and polite reminder letter or email detailing the outstanding payment. It's the best way to maintain a positive business relationship with the customer in question. Naturally, it’s best to take on a friendly, understanding tone. You can include a pay-by date and suggest they contact you to come to an understanding if the invoice remains unpaid. That way, your follow-up letter opens the lines of communication and allows you to come to a payment agreement without resorting to legal action.

A Formal Notice

If, after sending numerous reminders, the customer still has yet to fulfill their payment obligations, you can shift your approach and send a formal demand letter. Doing so often has a more significant impact, warning the recipient of possible legal action. This will typically get the ball rolling, leading to some sort of resolution for both parties.

Pursue Legal Action if the Customer Refuses to Pay

If you choose to pursue legal action, make sure to have the necessary proof to file a lawsuit. Naturally, you can also turn to alternative courses of action to find common ground. Legalhood allows you to discuss your situation with a legal expert. That way, you can save yourself lawyer fees and resolve the issue without going through the whole court system.

If you have no choice but to bring the matter in front of a judge, head to small claims court or court to win your case. Consider the time and money you’ll have to invest, especially since fostering alternative routes is preferred to bypass the court system.

Reasons Why Renovation Project Invoices Aren't Paid

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First, list the reasons why your customer hasn’t paid the invoice on time. By understanding your customer’s circumstances, you can then determine the best way to get paid. A myriad of reasons can explain the situation, including: 

• your customer may be experiencing financial hardships;

• they may be disputing the work done;

• they're simply careless or forgetful; or

• simply unwilling to pay, but why?

With every situation, one must take into account the context. For example, the type of work executed, the contract binding you to said customer, your business relationship with them, and just how far you’re willing to go to get your money. 

The best practice when dealing with a non-paying customer is to reach out to them, whether by phone or email. If the customer in question is going through financial hardships, you can find common ground. Remind them of the contract they agreed to and the services rendered. Be firm; explain the actions you will take should payment not be received. Do so before moving on or taking additional measures. Typically, cases involving individuals who are experiencing financial hardships are relatively rare, however, still a likelihood.

Should the customer in question be disputing the job done, make sure the work commissioned was executed according to contract details. If changes were done midway, make sure there’s a written account of all changes or add-ons. Doing so will protect you and the customer in the event of a dispute or misunderstanding. If the job was executed as per the contract, you can pursue legal action. But you can also negotiate the total amount owed.

Your customer may also have never gotten an invoice—maybe it was sent to the wrong address after a recent move, separation, or by mistake. In that case, you can either send a reminder or check in with the customer prior to sending the invoice.

Should the customer refuse to pay on account of negligence or unwillingness, you can pursue legal action.

How to Manage Trouble-Free Invoicing

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Here are some tricks to handle efficient invoicing. Take proactive steps to establish a healthy business relationship with the customer or carefully vet your customers beforehand. 

How to Manage Accounts Receivable

To avoid unpleasant surprises or forget to send a customer invoice, make sure your accounts receivable system is managed flawlessly and efficiently. You’re more likely to forget or overlook some administrative aspects during more hectic periods. 

If you’re a contractor and manage a small team to help you meet demands, make sure to set some time aside to follow up with customers. You can also entrust this managerial duty to a resource person who can handle the tasks at hand and ensure invoices are paid on time. Above all, don’t wait for the jobsite to wrap up before following up. This way, your customer will grasp how serious the situation is. 

There’s no deadline by which to claim unpaid services rendered. Once the work commissioned is executed according to the contract details, you can request payment. 

Set Up a Payment Plan

Make your customers aware of the types of payments accepted, ensuring they have more than one way to settle their bills. For example, Interact payments are appealing to those who are familiar with new technologies. Upon signing the contract, feel free to inform customers about your policies regarding payment methods and when payments are due.

Invoice at Every Step of the Way

You can also strike a deal with a customer ensuring payments are made as the project progresses. This way, you’ll be paid at every step of the way. This method is often preferred for large-scale projects when the work is staggered over several weeks and the work finish date has been pre-determined. You can suspend work if the customer refuses to pay the invoices due as agreed upon. 

FAQ About Managing Oustanding Invoices

How to deal with a client that won't pay?

If a client refuses to pay despite the many reminders, look over your contract and the payment conditions stipulated. You can apply late fees, suspend your services, or negotiate a payment plan. If the situation isn’t resolved, send a demand letter and consider pursuing legal action.

How to follow up with a customer regarding money owed?

Start by sending a detailed invoice with a payment reminder. Should the client fail to respond, send a formal written notice and then attempt to settle a payment plan outside of court. As a last resort, you can seek payment through small claims court or reach out to a collection agency.