According to a survey by the Freelancers Union, more than 70% of freelancers report having a nonpaying client. If you’re a freelancer, you know that not being paid damages your bottom line, and can even ruin your career if it happens often enough. But while recovering the funds you’re due is possible, it’s not necessarily an easy task.
Much of the reason some clients don’t pay freelancers stems from the nature of the freelancer-client relationship. And understanding the nature of that relationship can go a long way in helping you recover your hard-earned money.
Employee vs. Freelancer
There are some significant differences in how freelancers are paid relative to employees. An employee is paid wages or a salary through a company’s payroll process, and the employer is legally obligated to issue the paycheck on time. The employer is also responsible for taking deductions from the employee’s paycheck, such as federal and state taxes, unemployment insurance, and Social Security contributions.
Businesses are also required to pay employees for their work, even if the employee’s work is substandard. While a business owner or manager can fire an under-performing employee, the employee must be compensated for time on the job before termination.
When an employer can’t or doesn’t meet payroll, employees can file a complaint with the state labor board and receive assistance in getting paid. If an employer files for bankruptcy, the bankruptcy court prioritizes the payment of employee wages during the liquidation or restructuring process. This means that if a company goes out of business and still owes employees their paychecks, those employees will be among the first creditors to receive payment. Also, employees are usually entitled to unemployment benefits when they are laid off.
Freelancers, on the other hand, are not on a company’s payroll, and as such are not entitled to any unemployment benefits. Things become problematic for freelancers when a client refuses to pay or runs out of money. While clients are indeed obligated to meet the terms of a contract, the labor law protections that cover employees do not apply to freelancers.
In other words, if a client does not pay a freelancer, the freelancer’s primary recourse is to file a lawsuit in small claims court. If a freelancer works for a company that goes out of business, the freelancer’s invoices are lumped in with those of other bankruptcy creditors and, unlike employees, are not given priority.
Legally, freelancers are in a vulnerable position when it comes to client payments, which is why they must be proactive about billing and collection policies. If you don’t defend your right to the money you’ve earned, nobody else will.
Why Clients Don’t Pay
There are many reasons why clients fail to make timely payments to freelancers. And knowing the client’s situation can be helpful in developing a collection strategy.
Here are some of the more common reasons why clients do not pay:
- Bad Accounting Processes. Some well-intentioned clients simply have not implemented a reliable payment process. This is particularly common in new businesses. However, older companies that seldom work with freelancers also run into issues. This is because in many companies, invoice payment is a multi-step process: Invoices typically have to be approved by one or more managers or executives, and they must be coded properly for bookkeeping purposes. This means that an invoice likely changes hands several times before the accounting department receives it – and if someone makes a mistake, accounting has to return the invoice for a correction.
- Personnel Issues. If your client is an actual business with multiple employees, you likely have one primary contact who assigns work and handles invoices. His or her supervisor may be aware of you, but probably has little information about your work or how your payments are handled. If your contact is out of the office due to illness or vacation, or has been terminated, delays in payment are highly likely.
- Changes in the Payment Process. Companies, particularly startups, often undergo major process changes as they grow. Payment processes that make sense for tiny businesses (such as paying freelancers via PayPal right after submitting work) don’t always work for larger organizations. A change in payment routine can delay your payments.
- Changes in Payment Services. Some businesses use third-party payment services to process and issue payments to freelancers. Clients sometimes change services, and there can be initial bugs in the transition, such as a failure to establish payment due dates or transfer direct deposit information.
- Cash Flow Problems. Businesses that run into cash flow problems may have good intentions – they plan to pay you, but simply need more time.
- Contractual Issues or Ambiguous Payment Terms. Client-issued freelance contract agreements often include clauses that heavily favor the client. If you don’t change or update these clauses, your client may have a lot of time to pay you. Furthermore, there may be legitimate confusion regarding payment terms. Reread your contract or payment agreement to see if the language could be interpreted differently by your client, or if you misunderstood the terms.
- Client Dissatisfaction. Some clients withhold payment if they are dissatisfied with your work. In an ideal world, a client would let you know that there is a problem so it can be resolved. Unfortunately, some clients do not give any notification and simply refuse to pay, or otherwise pay less than the agreed-upon amount.
- Unethical Business Practices. There are businesses that deliberately hire freelancers with no intention of actually paying for any work completed. In some cases, the client contracts a job and then simply ignores requests for payment. Or the client may ask for sample pieces and proceed to use them without permission.
Obstacles to Pursuing Payment
Pursuing payment is part of doing business. This is why many businesses have teams (or even departments) responsible for managing accounts receivable. As a freelancer, you manage your own accounts. If you’re uncomfortable pursuing clients for payment, it can seriously impede your business’s profitability.
If any of the following apply to you, address the issue immediately:
- Lack of Self-Confidence. This is an issue among many people, and freelancers are no exception. But being self-employed means that you have a greater responsibility to protect your own interests. This means learning how to set boundaries, assert yourself, and be willing to engage in productive conflict when necessary.
- Fear of Upsetting or Alienating the Client. Freelancers often work hard to secure a gig, and often prefer to work with established clients. It’s easy to fear that being pushy about payment could reduce the chances of receiving additional work – but there is no point in working for a client that doesn’t pay consistently (or at all).
- Concern Regarding a Damaged Reputation. You might worry that if you push a client for payment, the client will react with hostility and badmouth you or your work to other businesses. While this is possible, it’s important to note that a client who badmouths you is potentially exposing him- or herself as someone who doesn’t pay freelancers.
While all of these fears and concerns are understandable, you have a right to your earnings. A client that doesn’t pay you on time is in the wrong.
Contacting Your Client
It isn’t always easy to decide when it’s time to inquire about your payment. After all, you want to protect your relationship with a good client, and asking for a late payment is not only uncomfortable, it can put the client on the defensive.
However, it’s important to take action early in the payment cycle. Not pursuing payment within a few days of a missed deadline suggests to your client that you aren’t that concerned about getting paid on time.
Payment Delivery Methods and Normal Delivery Times
Clients typically make payments in one of three ways: via online payment services, with a paper check, or via direct deposit. The type of payment affects the speed by which you can reasonably expect to receive it.
- Online Payment Services. Using an online payment service, such as Paypal, is often the fastest way to get paid. If a client promises to pay you through one of these services on a specific day and it doesn’t arrive, send a polite email the next day.
- Direct Deposit to Your Bank Account or Credit Card. Direct deposits often arrive in your account the day after they are processed, but can occasionally take an additional day or two. Give payments from new clients up to three days before making contact. If this is a regular client and a payment doesn’t land in your account when it normally does, let the client know right away, as there may be a bank error.
- Paper Checks. Checks sent via postal mail can take anywhere from two to five days to arrive, sometimes longer due to bad weather or a holiday. Wait a week before contacting a client about payment.
Before contacting a client about payment, do these three things to avoid looking incompetent or irresponsible:
- Make Sure You Haven’t Missed the Payment. Check your bank account, invoicing software, and PayPal account for the payment. If your client sends payment via your bank’s payment system, you may have to manually accept the funds before they are credited to your account. If you haven’t logged into your account lately, or the email letting you know about the payment ended up in your spam folder, it may be that the money has been sent – you just haven’t found it yet. If you’re expecting a paper check, check your mailbox and talk to your neighbors, as your mail may have been mis-delivered.
- Check Your Contract. Your contract should describe the client’s payment terms, including how long the client has to pay. If there is no payment clause in your contract (or if you don’t have a contract), review your correspondence with the client to find mention of payment times. If you got the gig by responding to an online ad, review it to see if it discloses payment terms.
- Review Recent Correspondence With the Client. The client may have sent an email notifying of a delay or change in terms of payment. Check each email folder to ensure that you haven’t missed a notice.
How to Request a Payment Status
A request for a status update is simply a request for information, and does not imply that the client has done anything wrong. If you start your communications on an accusatory note, the client may feel defensive. On the other hand, asking for a status update before actively beginning a collection effort helps you to maintain good client relationships.
First Status Update Request
Keep the following tips in mind when reaching out initially:
- Presume Good Faith. Don’t approach your client assuming the worst. Instead, assume that the client wants to pay you and has either done so (and you haven’t received the payment) or is actively working to pay you.
- Describe the Situation Accurately and Objectively. Treat the nonpayment as something that both you and the client need to address together. Explain why you are reaching out and ask if there’s any error on your end. Again, be non-accusatory.
- Time Your Request Strategically. Avoid sending a collection email over the weekend or late on a Friday. Instead, send it on a weekday morning, so your contact has time to read the email and connect with the department responsible for getting you paid.
Status Update Follow-Up
If you don’t hear back from the client or your contact within 48 business hours, consider the following course of action:
- Call the Client. If you have a phone number for the client, call. Doing so accomplishes several things: A phone call, even if it goes to voicemail, sends the message that you are serious about getting paid. Secondly, if your client has missed your email due to a cluttered inbox, the phone call alerts him or her to it. Finally, a call can help you identify reasons for the nonpayment – for example, a nonworking number or a voicemail message can let you know whether a company has gone out of business or if your contact is no longer employed by the company.
- Send a Follow-Up Email. Send another brief, friendly request for a payment status that includes a mention of your previous email and phone call.
Third Status Request
If the client fails to respond to your emails and phone calls, and at least a week has passed since you sent the first email, there is a good chance that the client is trying to avoid you. This could be because the client doesn’t intend to or can’t pay you. Either way, it’s time to be more direct in your approach.
Below is a sample letter that you could use in this instance:
Dear [Client Name],
I’m disappointed that I have not received a response to my emails on [date of first email] and [date of second email], nor to my voicemail message on [date of phone call]. I have not received payment that was due on [date], nor have I had any communication from you on this matter.
I would like to settle this matter quickly and without contacting your supervisor or pursuing legal remedies. I value you as a client and have appreciated the opportunity to work with you. If there is a problem, I’d appreciate it if you would contact me so that we can remedy this situation together.
I know that you normally make your payments to me via check, but I’m happy to accept a PayPal or Visa/MasterCard payment if it’s more convenient for you. Let me know.
I look forward to hearing from you.
The Client’s Response
Hopefully, your client responds promptly and pays you right away. However, if the client says that more time is needed to “look into” the issue, be wary. Online banking and payment processing services make it reasonably easy for businesses to track payments – the client shouldn’t need more than 24 to 48 business hours to research the status of your payment.
If the client refuses to remit payment promptly or doesn’t give you a date by which you can expect to receive it, you’ll need to set a deadline yourself. Contact the client again, as well as the client’s supervisor or department head, and explain that if you don’t receive payment by a specific date, you’ll have no choice but to start collection efforts. You can do this via email, but follow up with a letter sent via certified mail to communicate the seriousness of the situation.
Strategies to Collect Payment
When it becomes obvious that a client can’t or won’t pay, it’s time to start the collection process. Unlike the payment status process, in which your primary goal is to receive information, the goal of the collection process is to get your money. This does not mean that you have to assume the worst about your client, but you should expect to work hard to receive what you are owed.
Before beginning the collection process, consider your options for persuading the client to pay up. Depending on your situation, these may include any of the following:
- Going Over Your Contact’s Head. If your client is a multi-employee business, consider contacting someone else at the office, such as the accounting manager. You don’t want to do this until you’ve made several fruitless attempts at working with your contact.
- Arbitration. If your client issued your contract, review it carefully. It may require you to resolve any differences (such as nonpayment) through an arbitration board. The contract might include the name and contact information for the arbitration board that your client wishes to use. Contact the arbitration board and ask what you need to do to file a case.
- Mediation. If your client is local, you may be able to find a business mediation service that is willing to work with you. In the mediation process, a trained, neutral mediator works with both you and your client to resolve your dispute. The mediation option is often a good one if the reason you aren’t getting paid is due to client dissatisfaction or a conflict over the actual amount owed.
- Offering a Payment Plan. If the client wants to pay but is having cash flow problems, offer a short, three- to six-month payment plan. While this is a risky option, as the client may go bankrupt during this time, getting something for your work is better than getting nothing.
- Offering to Settle for Less Than Owed. Unfortunately, an unethical client may have been hoping for this outcome all along. However, if the client is willing to pay a significant percentage of the owed amount, this can be the most efficient way to recoup some of your losses and move on.
- Third-Party Intervention. If you connected with your client via an online ad or freelance website, contact the customer service department of the site to report the problem. The site management can’t give you your money back, but it may be able to intervene on your behalf. If it receives several complaints about your client, it may decide to stop running the client’s ads, thereby protecting other freelancers.
- Going to Small Claims Court. All 50 states have small claims courts that are designed for use by non-lawyers. If the amount you are owed is less than your state’s small claims court maximum limit (which can range from $2,500 to $15,000), you can bypass hiring a lawyer and represent yourself in court. (Some states, such as Illinois, do allow lawyers to represent clients in small claims court. Others, such as California, do not.) While you still have to pay court costs, such as a filing fee and the cost of having your client served with your suit, you can save a lot on attorney fees. Your client may be required to pay your court costs if you win the suit.
- Going to Regular Court. If the amount your client owes you exceeds the threshold for small claims court in your state, you’ll have to go to a regular court to file a lawsuit. While it is possible to represent yourself in court, it is generally not considered advisable, as the court system is set up for attorneys, not laypeople. Because you have to hire a lawyer, this option can be expensive, though you may recoup your court costs and attorney’s fees if you win your lawsuit and your client actually does pay the judgment.
Keep Your Emotions in Check
Chasing down payment from someone can be both infuriating and emotionally draining. However, it is crucial that you not lose control of your emotions while dealing with a client. Avoid tears, raising your voice, or over-the-top threats in emails, voicemails, or phone calls. Such conduct can harm your professional reputation, and your client may feel entitled to ignore you (and your payment requests) because he or she feels threatened.
Get Legal Assistance
Many freelancers simply cannot afford to hire an attorney, especially when the total amount of unpaid invoices may be less than even an hour or two of a lawyer’s time. Still, there are real benefits in seeking legal advice: A lawyer may be able to clarify contract terms for you, offer suggestions for filing a small claims lawsuit, or send a letter to your client on your behalf.
If you have access to a lawyer who is a friend or family member, he or she may be willing to help for a reduced fee. If you have a legal insurance plan, which typically provides free or reduced-cost legal services to members, contact a plan lawyer for assistance.
A third option is finding out if there are any small business legal clinics in your area. While the lawyers working for these clinics often don’t engage in litigation, they can advise you on your rights and suggest steps that you can take. The Small Business Administration offers a list of resources that may be of help.
Keep Good Records
Good record-keeping is essential throughout the collections process. Being well-organized not only saves you time, it also helps ensure that you’ll be prepared if you have to go before an arbitration board or to small claims court. Keep copies of all correspondence, proof of mailing (for example, if you send the client a certified letter, keep the receipt), and a log of any phone calls that you make. Keep track of your collection costs as well, such as receipts for mailing correspondence, making copies, or getting documents notarized.
Lastly, track the hours you spend on collections, as you may be able to get compensation for this time from your client.
Send Multiple Invoices
Continue to send invoices on a regular schedule (such as every 14 days). Consider sending your invoices, along with letters requesting payment, via certified mail through the United States Postal Service. (This is an option offered by many online invoicing services, and the fee is often minimal.)
If your client is a business with multiple employees who work together in an office, there is a chance that a snail mail invoice addressed to the attention of accounts receivable may end up in the hands of someone other than the contact who is ignoring you. This can result in payment – or, at the very least, you may attract the attention of someone who is willing to look into the situation on your behalf.
Even if you don’t get paid right away, you may find that persistent invoicing eventually gets results. This is particularly true if the business is sold, if the accounting staff changes, or if new management takes over.
Going to Court
Determine Whether It Is Worthwhile
Only you can determine how much time and money you want to spend attempting to recoup money owed for freelance work. For example, you may decide that you will only spend the equivalent of 30% of the invoice balance on collection efforts. After that, you’ll write it off as a loss and move on.
Some people feel differently though. They don’t care about the money as much as they do about ensuring that clients don’t treat them – or other freelancers – poorly. If you identify with this group, you may go to great lengths to collect debt, such as filing a lawsuit, even if it costs more money than you are owed.
The process of filing a lawsuit, either in regular or small claims court, varies between court systems. The websites for many courts can be quite helpful, providing you with the necessary forms and information – or you can contact Legal Services Corporation, (LSC) for information on courts in your jurisdiction.
Remember that there is a statute of limitations on filing lawsuits over a debt. While the amount of time can range from two to six years (or more), it’s important to be aware of this restriction and check with your local court to find out what it is for your case.
Settle Before Court
If you decide to file a lawsuit, you must serve your client with a notice of the suit and a summons to appear in court. Laws governing the service of legal papers to a defendant vary by state – you may be able to serve your client the legal papers via certified mail, or you may have someone else do this for you.
If you have a lawyer, he or she will know your options. If you file in small claims court, check the court’s website or ask the clerks about your options. The cost of service varies, but is often less than $100. This sum can be added to the amount you request in your suit.
After being served, a client may suddenly be very motivated to either pay you in full or negotiate a settlement. Your lawyer can assist you with negotiations; if you don’t have a lawyer, review the settlement offer carefully and be sure that you actually receive payment before withdrawing your lawsuit.
Collecting a Legal Judgment
If you go to court and the judge rules in your favor, it is your responsibility to collect the judgment from your former client – the court won’t do it for you. What the court will do is give you some collection options that you didn’t have before you won your lawsuit.
Depending on where you live, these options may include:
- Levying the Client’s Accounts. You may be able to require a bank or other financial institution to turn over funds that are in your client’s financial accounts.
- Filing a Lien on the Client’s Property. Does the client have a house? Land? Valuables? You may be able to file a lien against the value of the property, entitling you to all or some of the property’s value if and when your debtor sells it.
- Garnishing the Client’s Paycheck. This is not an option if your lawsuit is filed against a business. However, if you worked for a sole proprietor who receives income from a day job, you may be able to request permission to garnish your former client’s paycheck. During each pay period, a percentage of your debtor’s paycheck is deducted by his or her employer’s payroll department and is sent to you.
The process for using one of these collection strategies depends on your court system. In some instances, you can ask the court to subpoena your former client to undergo a financial examination. During the examination, you can ask the client to identify assets and sources of income. With that information, you can ask the court to order a lien, levy, or payroll garnishment.
Once you’ve won your judgment, state law determines how long you have to execute your collection options and pursue debts – this can be up to 10 years or more. In addition, you may have the right to go back to court to renew the judgment, giving you a very long time to monitor the client and initiate collection activities.
Remember, while you have a right to make reasonable efforts to collect your judgment, you do not have the right to harass your former client in an attempt to get them to pay you. This means you cannot use abusive language, call the client early in the morning or late at night, or otherwise engage in conduct that could be considered harassment. If you are confused about the steps that you can take, speak with an attorney.
Another thing to consider is that aggressive collection techniques may encourage your former client to file for bankruptcy. Once this happens, there is a good chance that the court will discharge your judgment, rendering it uncollectable. Be polite in your collection attempts, and if the client seems to be having major financial problems, consider negotiating a settlement.
Credit Consequences for the Client
Court judgments, which are a matter of public record and regularly appear on credit reports, can have an enormous negative impact on your former client’s credit rating. Judgments can stay on a consumer credit report for up to seven years or until the judgment runs out. Since judgments are often renewable, you may be able to keep the judgment on your former client’s credit report for decades. In many cases, a desire to remove the judgment is enough to motivate a client to make an effort to repay you.
Some clients pay freelancers with a check that bounces. While this is occasionally the result of something beyond the client’s control (such as a bank error), it is likely the result of negligent accounting practices, a company that is having cash-flow problems, or a client who is trying to scam you. Regardless, writing bad checks is illegal, and people who bounce checks can face both criminal and civil charges.
When a client bounces a check, contact him or her immediately. In your email, explain that you expect to be compensated, and offer some secure ways of paying you, such as a cashier’s check or PayPal.
If the client doesn’t pay up, your options depend on the laws of your state and county regarding bounced checks. If your client lives outside your state, that state’s laws may also give you some options. You need to research how to proceed – start by checking the website of your state attorney general to see if it includes information on bad check programs in your (or your client’s) state.
Here are some of the ways you can handle receiving a bad check:
- Submit Your Check to a Bad Check Diversion Program. Many counties operate bad check diversion programs. These programs work with bad check writers by offering them an alternative to criminal charges or a lawsuit. If you submit your claim to one of these programs, your client will be required to make restitution. These programs typically require your client to complete a financial and checking account management course, which is to ensure that you get your money quickly while the writer of the bad check is kept out of the criminal justice system. The advantage to you is that the program tries to collect your money on your behalf and you don’t have to go to court. Perform an Internet search for the county in which your client resides along with “bad check program” to find the program’s website.
- File a Lawsuit in Small Claims Court. In some states, victims of bad checks can sue for significantly more than the value of the check. In California, for example, plaintiffs can sue for up to three times the check’s value. Small claims courts often have websites containing helpful information for laypeople – just remember, the limits of small claims ranges from $2,500 to $15,000, depending on the state in which you are filing the lawsuit.
- File a Police Report. Since writing a bad check is generally considered a crime, you may be able to file a police report. Police departments may require you to first contact your client via certified mail or submit the bad check to the county diversion program. Keep in mind that filing a police report is a serious action, and it could have significant ramifications for your client. While it may be merited, be certain to make a sincere effort to resolve the issue before taking this step.
- Hire a Bad Check Collection Agency. Some collection agencies specialize in collecting bad checks. They typically take a hefty cut of what they collect on your behalf – the amount varies by collection agency, but could be 25% or more, so enlisting the services of one may be a last resort on your part.
If a bad check causes your account to go into overdraft (resulting in fees), contact your bank or visit a branch and talk to a banker. Explain what has happened, and ask if some or all of the fees can be reversed. Some banks do this as a goodwill gesture, particularly if you’re a longtime accountholder.
Should You Continue Working for a Nonpaying Client?
Occasionally, a client who is late on payments will ask you to continue working. While it may seem that the client is trying to scam you into doing more work for free, the truth can be more complicated than that. If the client’s money problems are temporary and not likely to be an ongoing issue, your willingness to continue work can improve your relationship, and may result in an ongoing stream of work.
Still, this ideal situation is not guaranteed, and even if your client appears to be honest, you have no way to verify whether you will be paid at a later date. It may be in your best interests to kindly – but firmly – state that you can’t complete any further work until you’ve been paid the money you are owed. If it is a longtime client who has a history of paying, you may offer your continued services, so long as it does not interfere with other paying work, as you may need to take on additional projects to make up for the income you’ve not yet received. Set a strict limit on how much additional work you are willing to do.
You may also request some payment before continuing to work – it doesn’t have to be much, but a small, token payment can be an indicator of good faith. If the client can’t oblige you in this regard, it may indicate significant financial trouble or a complete unwillingness to pay you at all. You may also want to set up a payment schedule for the past-due invoice, which would require the client to make partial payments on agreed-upon dates. If the client fails to make these payments, stop working.
Regardless of your approach, it is crucial that you only perform additional work for a trusted client if you can afford the risk. Again, regardless of your client’s good intentions, there is no guarantee you will be paid.