A client owes me $4,800 and payroll is Friday. How do I chase him?

The question

An illustrative letter.

The answer

My dear, I spent years in credit and debt recovery, and I can tell you this is one of the oldest problems in business. You did the work, you did it well, and now you are carrying his debt while your crew waits for their pay. That is not a failure on your part. It is a gap between when you earn money and when you are paid, and every small business owner meets it sooner or later. The goal now is to get paid without burning the relationship, and to make sure it does not happen this way again.

How do I ask for the money without losing him?

Start with the assumption that he means to pay. Many slow payers are disorganized rather than dishonest. Call him first, warmly, and ask whether he received the invoice and whether anything about the work needs attention. Sometimes a late payment hides a complaint he has not voiced, and it is better to hear it now.

Then put it in writing, the same day. A short, friendly email or letter does more than ten phone calls, because it creates a record and sets a date. Include the invoice number, the amount of $4,800, the date the work was finished, the original due date and a firm date to pay, perhaps seven days out. Make paying easy: list every way he can pay you, and offer to take a card or a bank transfer if you can.

If he is struggling, offer a plan, in writing: half now and half in thirty days, for example. A plan he keeps is worth more than a demand he ignores.

Should I keep working for him?

Not until this is settled. Pausing new work is fair, and it is not an insult. You might say, "I'm glad to schedule your next job as soon as this invoice is cleared." A good client will understand. A client who expects you to keep working unpaid is not a client you can afford.

How do I meet payroll on Friday?

Pay your crew on time, whatever else happens. South Carolina law lets workers recover up to three times their unpaid wages, plus attorney's fees, and a missed payroll can cost you good people faster than any bad client.

If the cash is not there, look first to your own reserves, then to a business line of credit if you have one, or ask a supplier for a little more time on what you owe them. Be very careful with offers of fast cash repaid daily from your sales, which can cost far more than they appear.

And never, ever cover payroll with the taxes you withhold from your workers' pay. That money belongs to the government from the moment you hold it. The IRS can hold the people responsible for it personally liable for the full amount, through what it calls the Trust Fund Recovery Penalty.

What if he still won't pay?

Then you have stronger tools, and some of them have deadlines.

• A mechanic's lien. In South Carolina, someone owed money for work on a building can file a lien on the property, but the lien is lost unless it is served on the owner and filed within 90 days after the work stopped. At 70 days late, your window may already be closing, so speak with a construction attorney this week if you want to keep that option open.
• Small claims. South Carolina's magistrate courts hear claims up to $7,500, so a $4,800 debt fits, and many people file without a lawyer.
• A final notice. Before either step, a last written notice that names the action you will take, and the date, often brings payment.
• A collection agency. Some owners use one as a last resort. They usually keep a share of what they collect.

These steps are serious, but sometimes they are the only language a non-paying client respects.

How do I stop this happening again?

Every job, however friendly, starts with a written agreement. Take a deposit before work begins, and for larger jobs, ask for payments as each stage is finished. State in the agreement when payment is due and any late fee, because a late fee usually cannot be added later if it was never agreed. Some states limit deposits on home improvement work, so check the rules where you work. Send your invoice the day the job is done, and follow up the day it becomes late, not two months after.

How do I build a cushion for payroll?

Aim to keep at least one full payroll in a separate business savings account, then two. Set aside a small share of every payment you receive until you get there. It will not happen in a month, but once it is there, one late client becomes an annoyance rather than an emergency.

You built a crew that people want to hire. Protecting the money they earn is part of protecting the business you are building.

One thing to do this week

Put a reminder in writing today with the invoice number, the amount and a firm date to pay, and ask an attorney about the lien deadline.