Running your own business and contracting out has plenty of perks, but there are also challenges — and one of the most frustrating is having to chase a client for payment.
In most cases, there’s no ill will involved; it’s just a matter of bumping your payment up on your client’s to-do list. But what happens if you encounter a difficult client who simply refuses to pay?
Jump ahead to learn:
There are many reasons a client might refuse to pay a contractor, but one of the most common reasons is that the client is unsatisfied. They may believe that your work was subpar or feel that the results were not what they were expecting.
Your client’s dissatisfaction could be the result of simple miscommunication. It could be an issue with your contract: if it doesn’t spell out exactly what your client should expect from you, it could cause misunderstandings.
For example, say a homeowner client is upset that you didn’t clean up after finishing the job and refuses to pay until the mess is cleaned. However, this is not a service you typically provide. Spelling out post-construction cleanup responsibilities, including a service-level agreement (SLA), ensures you’re all on the same page.
Of course, it’s also possible that you might have done everything right, and the client is just trying to get a free ride. That’s why knowing your legal rights as a contractor is critical.
In most lines of business, having a client refuse payment happens sooner or later. Here’s how you can take steps without acting rashly.
TIP: Remember to document all your contact attempts and interactions with the client. It’ll help you remember what was said and helps you build a good faith paper trail if you need to take legal action.
Clients often refuse to pay contractors because they’re unhappy with the results, so it’s important to understand why.
The first thing you should do is listen. A face-to-face conversation is the best way to go because you’ll communicate better this way than over phone, email or text. Calmly ask your client to explain exactly why they’re dissatisfied. Don’t argue, and don’t justify yourself while they’re speaking; just listen.
Once you’ve listened, start by repeating back what the client has said in your own words:
This is a very effective way to let them know you’re hearing them. Repeating back also ensures you understand their frustrations correctly. Giving them a chance to vent their frustration goes a long way toward rebuilding trust.
Hopefully, this will smooth the way to the next step.
When a client refuses to pay a contractor, there’s a good chance they don’t want to have to go through the trouble of hiring someone else. They’re withholding payment as leverage to get you to fix the problem.
Yes, redoing work may cost you in the short term. But there may be long-term consequences if you leave customers unhappy. For example, if your business receives a lot of word-of-mouth referrals, you can bet word of a bad experience will travel, too.
Think of fixing the problem as a way to invest in your business’s reputation. Most customers are happy to give you a chance to set things right, especially if you’ve established a good relationship from the beginning.
Sometimes it won’t be possible to redo the work. If that’s the case, you could offer a discount on the amount the client owes you. Discuss the possibilities with the client and see if you can come up with a deal.
But if your efforts to find a reasonable and mutually beneficial solution hit a stone wall, it may be time to take legal action.
If you’ve exhausted all other means, you may be able to file a suit against your client in a small claims court. It’s a good idea to speak to a lawyer first to see what your options are and whether it’s worth it.
If you’re going the legal route, it’ll be very helpful to have a written contract that outlines all the details both parties agreed to. Without a written agreement, it’ll be your word versus theirs — and more difficult for a court to make a judgment.
If at all possible, the best course of action is prevention. A few precautions before you start a job can help you get paid in full and on time later on.
For construction contractors, one of the best ways to prevent payment issues is to get all agreements between you and your client in writing. A solid contract — ideally one reviewed by a lawyer — can prevent major headaches later on.
It’s common for contractors to ask for a percentage of the overall fee upfront as a non-refundable deposit. This way, at least you’ll receive some compensation for your time and labor if the client backs out for any reason. The deposit size depends on the work being done and the state you’re in, and can range from 10-50%.
Keep your eyes and ears open when interacting with a potential client. If something doesn’t feel right to you, consider backing out. It’s often wise to give up a job rather than work with a client you can’t trust.
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Wil Chan is a content writer at NEXT and has been a professional writer for more than ten years. His work has been featured in publications including Forbes and Greatist. He has run a freelance business since 2016 and feels passionate about helping self-employed people in all industries succeed.
