What to Do When a Client Stops Paying You

Ugh, it happened. A coach's worst nightmare…your client’s payment has failed and your client has gotten mysteriously quiet. I know your first reaction is UGHHHHHHHH.  

And I get it, I know someone not following through on a payment can be super frustrating! Especially when you are owed thousands of $$ according to your contract. 

Side note: if you don’t have a contract, sorry you are out of luck, there is nothing to do at this point because you have NO agreement in place. Chalk this up as a learning experience and proceed immediately to Destination Legal’s template shop.

But know this: you are not alone. Trust me when I tell you that 90% of coaches go through a failed payment at some point - whether that be a $97 payment plan on an online course or $3,000 for private coaching. 

It happens. It sucks.  And there’s no doubt that non-payment is out of integrity and a breach of contract.  

There are a couple of steps you can take and it really comes down to how much time, energy and money you want to put into collecting the payments.

Before considering more of the “legal” options below, I would urge you to reach out and see what’s up with your customer or client. Is it possible to work out an extended payment plan? What’s the issue at hand? Sometimes coaching them through the issue can help.

And sometimes not…so below are the main options to consider if you want to proceed and try to collect payment (note: none of this is legal advice, just options).  You don’t necessarily have to follow this order but it does start with the easier options leading into more legal action.

OPTION 1: SEND AN EMAIL WITH THE CONTRACT ATTACHED

This is one step past the friendly email above and starts to cross into “you breached the contract” territory.  The option here is to have YOUR TEAM send an email with the contract attached, note that she/he is late on payments and that if they don't pay within X amount of days, you will pursue further legal action.  

The YOUR TEAM part is important here. Even if you don’t have a team, use a support@ or team@ email and “be” your team.  This helps because your client will see that this is an actual business and may help them understand the obligation at hand. 

OPTION 2:  SEND A DEMAND LETTER

A "demand" letter for payment can be written by you or by an attorney and is similar to the above but with more teeth. This would typically be an attached PDF versus just an email and formally outlines the amount owed, the language of the contract and that they are in breach.  

Having an attorney send this will definitely get more attention then if you send it yourself. It also basically says, you have X number of days to pay before we take more legal action (which would be the next options below).

OPTION 3:  BRING A CLAIM FOR BREACH OF CONTRACT

Depending on the amount you are trying to collect, you can talk to a litigation attorney about bringing a claim either in small claims court or you can go through mediation/arbitration as outlined in the contract.  In most cases you will then get a judgment that the money is owed to you; however at this point, you may still need help from an attorney to enforce that judgment.

Once you hire an attorney, obviously you are now incurring an expense so you need to weigh that expense with what you are trying to collect.  If you are going after $397, you probably don’t want to hire a lawyer that costs $500. 

If you do go this route, look for a small business attorney where you are located. 

OPTION 4:  HIRE A COLLECTIONS AGENCY

If you don’t want to deal with a claim, another option is to go to a collections agency (here’s one that is known in the online space).  The agency will review your contract and go directly to your client and try to collect the missing payments.  Typically they do not get paid unless they collect but they will take a pretty big chunk (usually 15%-25%).  

I’ve heard mixed reviews on this method but it’s one way to “outsource” collecting the money. 

OPTION 5: OFFER A SETTLEMENT

Finally, you could offer a "settlement" for a specific amount that you would be okay with to not pursue further action. Some may call this a “buy out” clause - especially for longer term contracts that clients are trying to get out of.  

So for example, let’s say you have a 12-month mastermind and around month 7, a client decides she wants out. She still owes $15,000 (5 months at $3,000 per month).  Instead of going after her for the entire amount, you could come to an agreement that she would pay $5,000 over the next 2 months and you agree not to pursue any further legal action.  

If you take this option, make sure to get everything in writing (e.g, what she is agreeing to, when and how she will pay you, what you agree to, etc) 

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Unfortunately, I have had more and more people asking about this lately and it’s definitely troublesome.  Missed payments are just a part of a growing business and something that you will have to deal with at some point.  Ensuring that you aren’t using too much pressure in sales and having a variety of payment plan options can help curb the issue. 

And remember, you are doing a great job. Sometimes letting a missed payment go and moving on can be the best thing for you mentally!  

If you want to learn more about why your contract is more important and what other pieces you may need in your business, definitely grab our coaches checklist below!