It happens. Despite being choosy about customers, despite delivering fantastic goods and services in a timely manner, despite providing great customer service and being proactive, sometimes there are customers that simply can't pay your bill. What do you do now? Let's talk about the strategies and options that are most likely to get you paid.*

The first step in dealing with a customer that cannot pay is to talk with them, preferably face-to-face. Be sure to listen really well. Get facts. Ask a lot of questions. Find out exactly what the problem is that's causing them not to be able to pay, and don’t be afraid to get specific. Let them know how important this invoice is to you and to your business—it’s money you’re counting on. Be empathetic, but don't shy away from the tough questions. You are, after all, a creditor.

Strategy 1: Ask for the Money

Now that you've taken the time to listen and understand, your first strategy should always be to ask for a specific date on which they will pay the entire balance. Always start there—asking for the entire balance to be paid in a reasonable (e.g., 30-day) timeframe. You may think that you have asked for this before, but you'd be amazed how often the answer changes after you've really listened to the customer and let them know that this payment is important to you.

If you're fortunate and the customer agrees, ask them exactly when the check will be cut. Let them know that you will be calling on that day to get the check number for your records, and then put that date on your calendar. Follow up without fail. Meanwhile, write up the exact nature of your agreement and email it to your client to make sure that you’ve understood everything correctly. Doing this not only makes sure everyone is on the same page, it also makes sure that the issue has been documented and time-stamped

If paying the entire balance in a reasonable timeframe is not possible, then there are alternate strategies to pursue.

Strategy 2: Settlement

If your conversation with your client makes you think their business is in serious trouble, you may be better off getting less money now versus a tenuous promise to pay the total later. This kind of discount is referred to as a settlement.

In a settlement, you agree to discount the bill by some percentage in exchange for an immediate payment. Typical settlement discounts are 50-80% of the original amount. Start with a small discount (e.g., waiving late payment fees) and work your way up until you get to something mutually agreeable.

Remember that the exchange of value here is immediacy in exchange for a discount. Therefore, a settlement agreement should stipulate fast, reliable payment, typically either a wire transfer or a cashier's check sent via a trackable overnight delivery service to be received within 2-3 business days.

Whatever you agree on, put it in writing and make sure they acknowledge it in writing. This kind of an arrangement can be a win-win if both sides execute faithfully, but make sure it is clear that if the deadlines for payment are not met, the discount will not be honored.

Strategy 3: Payment Plan

If you think the client is not in immediate danger of folding, or if you just can't deal with the idea of settling, you may want to arrange a payment plan.

The starting point for a payment plan should always be an immediate payment of some size as a gesture of good faith. Your first proposal might be 30-50% up front and then 10% every two weeks until paid. If that’s not an option, then work backwards from there—less up front, monthly, or every 60 days, etc., until you find something you can agree on.

Whatever plan you settle on, set specific dates and make sure they know what actions you are going to take if the dates are missed. Then put the agreement in writing and get them to sign it.

Important Note: "Pay When You Can" Is Not a Payment Plan.

Never, ever leave a client thinking that they can pay whenever they want to. This may seem like the "good guy" thing to do but it rarely works and leaves you no options for enforcement. In reality, "pay whenever" means "pay never." Work with the client to make specific arrangements and document them.

Strategy 4: Seek Professional Assistance

If none of the strategies above work, you may need to seek outside help. A third party collections agency can work with you on a contingency basis. This means they only get paid if you get paid and their fee is based on a percentage (typically 25-40%) of what the customer pays. You may also want to consider a legal route--litigation or small claims court--if the balance of your past-due invoices warrants it.

Strategy 5: Make Sure It Doesn't Get Worse

This probably should go without saying, but if you have a customer that cannot pay his or her bills, do not continue to extend credit to that customer unless you have a really good reason for doing so. Moving to a pay-in-advance policy is wise and will keep the problem from escalating.

Now, go get your money.

*It's important to note that debt negotiation can be legally complex. Although the strategies we present here are widely considered best practices, they are no substitute for the advice of an attorney.