What To Do When Client Fails To Pay

What To Do When Client Fails To Pay

No matter how good you think you are in managing your business, there will come a time when you will come across a client who can’t or won’t pay for your services or goods delivered. You should know where you stand and what your legal obligations are when you want to take this a step further. 

Steps To Take

Trying to “run after” your client should be done carefully and respectfully. Always be cordial when you get in touch with them.

The first step is to remind them of the payment. This can be done two days ahead of the deadline just so they have an allowance. The next step is to inform them that their payment is overdue. You may send a reminder a few days to a week after the deadline.



If they still haven’t made any payments yet, you can give them a final notice of payment. The final step (though this can be done earlier in the process) is to personally meet or talk to your client. 

Despite your efforts, and if they still refuse to pay, you may now consider filing a case against them. It is very highly recommended that you seek the help and advice of professionals to save you time and money, as well as let you focus on other important matters regarding your business. 

Formal Letter of Demand

Usually from this document alone a debtor will immediately act on their overdue fees and settle as soon as possible. 

This letter states that legal steps will be taken if non payment continues. It is usually sent from the solicitor’s office and yes, it uses their stationery. Another step you may consider is asking the debt collector to register the debt against the debtor’s credit rating. You may choose to do this before doing anything that involves a lawyer and court proceedings. 


Filing a Statutory Demand

A Statutory Demand is a formal written request for payment of debts owed by a company, issued pursuant to Part 5.4 of the Corporations Act 2001 (Cwlth) (‘Act’)

Basically this legislation will prevent insolvent companies from doing business, increasing their debt in effect. 

A company that has been served with a Creditor’s Statutory Demand has a period of 21 days to pay the amount demanded or apply to the Supreme Court to have the Creditor’s Statutory Demand set aside.

The 21-day period is strictly implemented and cannot be extended even by the Court. One should not do this alone and always seek the help of a professional as there are a ton of requirements that must be met before serving a Statutory Demand.


Court Proceedings

Your last resort should be court proceedings. This will be a huge task to undertake and will take a lot of your time and money away from you. Proceed with caution. 



You will have to consider paying a lawyer, attending hearings, getting all your documents in order, and other such tasks that will eat up your effort and energy. Your business needs your full attention too, so you need to be decisive about which path you want to undertake when it comes to delinquent clients. 


Prevention: is it possible?

Let’s start off by being honest – there are many variables and reasons contributing to why customers may fail to pay you. So, while avoiding this may not be entirely possible, there are certainly things you can do to help prevent this from occurring. Some of the processes and practices you can put in place to avoid customers failing to pay include:

  • Upfront Payments

Small businesses may find it easier to enforce upfront payments as part of their payment and trading terms.  This payment may be required a day before the service or delivery of goods is due to take place.  Same-day payment, upon delivery of goods or prior to the service actually taking place may be another way to manage this.

  • Prior Partial Payments

Another alternative that may help avoid lack of payment is a partial payment prior to the service or delivery taking place.  Many businesses require a down payment ranging anywhere from 20% – 50% of the total invoice value prior to doing business. This may be a viable option for your business.

  • Comprehensive Credit Checks

Before you take on a new client, you could consider doing a credit history check.  This can be a fast and easy way to find out if there are any red flags about a potential client before it’s too late.


Buying a Business in Australia


Credit checks are able to provide a summary of someone’s financial behaviour and give you an indication as to whether it is worth engaging in business with them. You can learn more about credit checks here

The Takeaway

Late or overdue payments are part and parcel of running a business. You should be open to the possibility that anyone, including regular customers, can incur debt. To avoid this from happening, or at least lessen the chances of them occurring, come up with a solid Terms and Conditions. This will put everything in order for everyone involved.

Finally, there is no need to do things on your own. Enlist the help of a professional so you don’t have to worry about such issues. JMA Credit, with our years of experience, can handle your case on your behalf so you can focus on more important matters.



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