Guide
When a customer will not pay
Most non-payment is process failure, not refusal. Telling the two apart decides what you do about it.
Reviewed by Darren Lim, US CPALicence CPA.742536028 min read
Before deciding what to do, work out which of three situations you are in. They look identical from your side and they need completely different responses.
Process failure. The invoice went to the wrong person, is missing a purchase order number, or is sitting in an approval queue nobody is watching. This is most non-payment, and it is fixed with a phone call.
Cash flow. They intend to pay and cannot right now. Usually solvable, often by agreeing a schedule, and worth handling carefully because these customers frequently stay good customers.
Dispute. They are unhappy with something, or have decided not to pay. This is the only one that needs to become formal, and it is the rarest.
Treating a process failure like a dispute damages a relationship over an administrative slip. Treating a dispute like a process failure means chasing politely for four months while the debt ages past the point of being collectible.
The ladder that works
Day 7 — confirm, do not chase. A short call to check the invoice arrived and is in the system. This catches nearly every process failure while it is trivial to fix, and it does not feel like pressure because it is not.
Day 30 — a reminder, in writing. Invoice attached again, terms restated, friendly.
Day 45 — talk to accounts payable directly. Not your site contact. Ask specifically what is holding it and when it is scheduled.
Day 60 — a conversation with the decision maker. By now you need to know which of the three situations this is, and you are entitled to ask directly.
Day 90 — formal. A written demand with a deadline, and a decision about what follows.
The value is in the consistency. A schedule applied to everyone reads as process; sporadic chasing driven by how annoyed you are reads as personal, and gets a worse response.
Mechanics liens
Most states give contractors the right to place a lien against the property they improved. It is a serious tool and a genuinely effective one, because it clouds the title — the owner generally cannot sell or refinance until it is resolved.
Three things matter enormously:
The deadlines are strict and short. Every state sets a window after last furnishing work, and it is often measured in weeks. Miss it and the right is gone regardless of the merits.
Preliminary notice is often required. Many states require a notice near the start of the job to preserve lien rights. That is a decision made when the work begins, not when payment goes bad.
Getting it wrong has consequences. An invalid or exaggerated lien can expose you to liability. This is the point to involve a construction attorney rather than a template.
The practical takeaway: understand your state's notice requirements and deadlines before you need them, because the most common way contractors lose lien rights is running out of time while being patient.
Writing it off
If it is genuinely uncollectible, recognise that and record it. Carrying a dead receivable as an asset overstates what the business is worth and quietly distorts every ratio built on it.
Two notes worth knowing. On cash-basis books there is generally no bad debt deduction for an unpaid invoice, because the income was never recognised in the first place — you lost the cost, not taxable income. On accrual books the treatment differs. Either way, the write-off is a conversation with your CPA rather than an entry to make on instinct.
And write-off does not mean forgiveness. You can pursue it afterwards.
Preventing the next one
Check credit on large commercial work. Common in construction and not remotely insulting.
Take deposits. You cannot lose material cost on a job you were paid for up front. See deposits and progress billing.
Bill in stages. Exposure at any moment is one stage, not the whole job.
Invoice the day work completes. Every day between finishing and invoicing is added to the front of the clock and to the odds.
Watch the ageing monthly. Most debts that become uncollectible were visible for months. The contractors who lose the least are simply the ones who looked.
Related
General information, not legal advice. Lien rights, notice requirements and deadlines vary substantially by state — get advice from a construction attorney in your jurisdiction before relying on them.
How we do this
We build this into your books. Starting with a month that costs you nothing.
An aged receivables report every month with anything past sixty days flagged, so a problem surfaces while it is still a conversation rather than a legal question — and write-offs recorded properly when they are genuinely uncollectible.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
Debts get harder to collect every week they age, and the ones that become uncollectible were almost always visible months earlier. One free month gives you the ageing you have been working without. Two days, no card.