What Contractors Should Do When Customers Don’t Pay

If you could always guarantee that customers would pay their bills on time, contracting might be the best job in the world. But hey, we live on planet Earth, and sometimes customers can’t — or won’t, pay their bills. And if you’re just in your first few years of contracting, you know that late payments aren’t just annoying — they can be a real threat to your livelihood.

So what can you do if clients can’t pay (short of ripping out their pavement at 3 am)? Well, you’ve got a few options, but ideally, you’d want to ensure the client can (and will) pay their bill before you even lift a shovel.

Let’s look at some practical steps you can take when you’re having a hard time collecting money from customers.

By the end of this article, you'll have a solid game plan to keep your cash flow steady and your business thriving, no matter what curveballs come your way. Let’s dive in and make sure you get the money you deserve without breaking a sweat.

Understanding the Reasons for Payment Delays for Contractors

Before you can fix the problem, you’ve got to know why it’s happening. Customers don’t just wake up one day and decide not to pay you (well, okay, some might). There’s usually a reason behind the delay. Knowing the cause helps you figure out the best way to handle it and prevent it from happening again. Let’s break down the common culprits.

Financial Difficulties

Sometimes, the money just isn’t there. Economic hiccups, unexpected bills, or personal financial messes can leave your clients strapped for cash. It’s not that they don’t want to pay; they just can’t right now. Understanding this helps you decide whether to offer a payment plan or work out a new schedule.

Miscommunication or Misunderstanding

Ever had an invoice go unnoticed or misunderstood? Maybe the client didn’t get the memo about the payment terms, or there was a typo in the bill. These mix-ups are more common than you think and can usually be sorted out with a quick chat. Spotting this issue early can save a lot of headaches and keep the cash flowing smoothly.

Customer Dissatisfaction

If a client is not happy with the work, they might hold back the cash. Whether it’s a minor detail or a major screw-up, addressing their concerns head-on can get the payment train back on track. Knowing this means you can focus on quality control and customer satisfaction to avoid these snags.

Administrative Oversights

Sometimes, it’s just good old-fashioned human error. Invoices get lost in the shuffle, emails hit the spam folder, or the person handling payments is out sick. A friendly nudge can often clear this up.

Now we’re not saying you have to be Mother Theresa and forgive the debt, but you at least need to understand the reasons for the debt. By figuring out why payments are delayed, you can tackle the problem directly and get your cash flow back in shape.

Proactive Measures to Prevent Payment Issues

Now that you understand why payment delays happen, let's talk about how to prevent them in the first place. Being proactive can save you a lot of time and stress down the line.

Clear Communication and Setting Expectations

First things first — make sure everything is crystal clear from the get-go. Lay out your payment terms in plain language, and don’t be afraid to spell things out. When your client knows exactly what to expect, there’s less room for confusion.

• Detailed Contracts: Draft contracts that leave no room for doubt. Include specifics about the scope of work, payment schedules, and any penalties for late payments. Make sure your client understands every clause before you start.
• Transparent Invoices: When it comes time to bill, make your invoices as detailed as possible. List out the work done, the costs involved, and the due dates. The clearer your invoice, the easier it is for your client to pay on time.

If you want to know more about this, we’ve got a great article called 7 Things to Include in Your Contractor Quote/Proposal Template you can check out.

Have a Follow-Up System

Don’t just send out an invoice and hope for the best. Set up a follow-up system to remind clients about upcoming due dates and overdue payments. This can be as simple as a quick email reminder or a phone call. Consistent follow-ups show that you’re on top of your game and serious about getting paid.

• Automated Reminders: Use software automation to send reminders a few days before and after the due date. It’s a simple way to keep your invoice top-of-mind without being intrusive. With AK Dash, you can create custom workflows triggered by events like "customer opens invoice" or "invoice payment 3 days late." This means personalized but automated follow-ups that gently nudge clients for upcoming payments.
• Personal Touch: Sometimes, a personal call or visit can make all the difference. If a client is consistently late, a friendly chat might be all it takes to get things moving. Using AK Dash’s Workflow email automation, you can set up reminders for these personal touches, making sure you never miss an opportunity to follow up

If you want to find out more about how to do this, check out our Workflow Email Automations Feature.

Offering Incentives for Early Payment

Everyone loves a good deal. Offering a small discount for early payments can be a great motivator for clients to pay up quickly. It might cut into your margins a bit, but it can also improve your cash flow and reduce the time you spend chasing payments.

• Early Bird Discounts: Offer a percentage off the total bill if payment is made within a certain period. Make sure this is clearly stated in your contract and invoices.
• Loyalty Programs: Consider setting up a loyalty program for repeat clients who consistently pay on time. It’s a win-win: they get a perk, and you get paid faster.

You can take care of all of this in our Proposal Generator Engine.

How to Get the Client to Pay Their Contracting Bill

Alright, so you’ve set up all the proactive measures, but what do you do when the payment is still late? It’s time to have a chat with your client. Here’s how to handle it like a pro:

Addressing Overdue Payments

When you notice a payment is late, don’t wait too long to reach out. The sooner you address it, the better your chances of getting paid without any issues.

• Stay Professional: Keep your cool and stay professional. Getting angry or confrontational will only make things worse. A polite reminder is often all it takes to get things moving — remember, there are a number of innocent reasons the payment might be late.
• Be Clear and Direct: Don’t beat around the bush. Let your client know exactly what the issue is and what you need from them. A simple, “Hi [Client], I noticed your payment for [Project] is overdue by [X] days. Could you please provide an update on when we can expect it?” can do wonders

Negotiating New Payment Terms

If your client is having trouble paying the full amount at once, it might be time to negotiate a new payment plan. This can help you get at least some of the money owed and show your client that you’re willing to work with them.

• Offer Payment Plans: Break the total amount into smaller, more manageable payments. This way, your client can start paying off their debt without feeling overwhelmed. You can use a platform like Acorn Finance to take care of the whole thing for you.
• Set Clear Terms: Make sure the new payment terms are clear and agreed upon by both parties. Have everything in writing to avoid any misunderstandings later on. Utilizing platforms like Acord Finance can help manage these details efficiently.

Bonus: Turning Payment Plans into a Lead Magnet

Not only do payment plans help with collecting overdue payments, but they can also be a great tool to attract new clients.

• Attract Hesitant Clients: Some clients might hesitate to start a project because they’re worried about the cost. By offering financing/flexible payment options, you can reassure them that they can afford the project without breaking the bank.
• Close More Deals: Flexible payment plans can be the simple nudge that gets potential clients off the fence and into a contract, even if their worry wasn’t price. It’s a win-win — they get the project they want with better payment terms, and you get the job.

If All Else Fails In Getting a Payment: The Legal Route

When payments are significantly delayed, sometimes you have to take some not-so-fun, but effective formal steps. Here’s what you can do:

Sending Formal Demand Letters

A formal demand letter clearly states the amount owed, the due date, and the consequences (usually Small Claims Court or collection agencies) of non-payment.

• How to Write One: Be clear and concise. Include all relevant details such as the invoice number, amount due, and a new deadline for payment. Mention the steps you’ll take if the payment isn’t received.
• Benefits: This should serve as a wake-up call to clients that you are serious about getting paid.

Small Claims Court

If the demand letter doesn’t work, you can use small claims court. In some states, it might be called the Justice Court, Magistrate Court, or something similar.

• Process: File a claim with your local small claims court, providing all of the relevant documentation, such as contracts, invoices, and communication records.
• Pros: It’s relatively inexpensive and doesn’t require a lawyer.
• Cons: It can be time-consuming, and there’s no guarantee you’ll collect the money even if you win the case.

Collection Agencies

As a last resort, hire a collection agency.

• How It Works: Collection agencies will chase the debt for you, using different methods to recover the owed amount. They’ll usually take a percentage of the collected amount as their fee.
• Pros: They’re experienced in handling delinquent accounts and can often recover the debt faster than you can on your own.
• Cons: It can be costly, as collection agencies take a cut of the recovered funds. Also, it might strain your relationship with the client, but by then you might not care.

Whatever option you choose, always stay professional. Getting emotional or confrontational can damage your reputation and harm future business opportunities. Always keep communication respectful and stick to the facts.

Where to Next With AK Dash

Collecting money from customers can sometimes feel like pulling teeth, but with the right strategies, you can make sure your business stays afloat and thrives. From understanding why payments are delayed to setting up proactive systems and knowing when to take legal action, you’ve got the tools to handle late payments like a pro. And remember, using tools like AK Dash’s Workflow Email Automations and Proposal Generator Engine can streamline these processes, keeping your cash flow steady and your stress levels low.

Ready to take your whole pavement business to the next level? Try AK Dash for free today. Find out for yourself how easy it is to optimize every part of your business, from driving clients, to driving projects, to driving finances. From there, you’ve got all the tools to build a real legacy your family will be proud of — you can do it, and we can help.