What do you do when a client refuses to pay?

It doesn’t matter what line of business you’re in, everyone’s familiar with the client from hell.

You know the sort. The kind who’s never satisfied, insists their job takes priority, and imposes impossible deadlines.

You start their project with good intentions, but they get more and more demanding as it progresses. One small thing after another goes wrong.

Then at the end of the project, the client refuses to pay. They claim the job was a shambles from start to finish.

They’re not suing you, but they do make it clear that if you try to claim your outstanding fees, they won’t hesitate to roll out the lawyers and counter-claim against you.

What are your options if a client refuses to pay?

So what do you do? You don’t have the time or the money to go to court (your client is bigger than you and can afford more expensive solicitors), but you need your fees paid.

There may be an answer.

Now, we think professional indemnity insurance is worth every penny. If there’s a claim of negligence against you, it’s no exaggeration to say it could save your business.

But it can be incredibly valuable when there isn’t actually a claim against you too. Like, for example when you're having trouble with an invoice-averse client.

How so?

Because professional indemnity insurance includes a rather nifty feature.

(Note: not all insurance is the same. We’re only going by the policies we know.)

How professional indemnity insurance can help

It’s worth mentioning at this point that professional indemnity is not ‘bad debt’ insurance. It doesn’t cover you for the simple problem of having late payers. It's not there to repay amounts you're owed, unfortunately.

But, the best policies can help if you’re certain that pursuing a debt you’re owed will mean your client counter-claims and sues you for negligence.

It's possible because insurers are canny – they know legal action is expensive and they’d rather avoid going to court if possible. The alternative in a situation like this is to step in and pay your outstanding fees instead.

For the policy to be triggered in this way, your insurer has to be satisfied your client is justified in refusing to pay your fees and that they would, in all probability, counter-claim against you. In other words, the work you did wasn't up to scratch and they're right to hold back your money.

If the dispute with your client can be settled by your agreement not to press for the contested amount, your professional indemnity insurance will pay your outstanding fees instead – if a claim against you for a greater amount can be avoided by doing so.

Better still, if your client refuses to compromise, your insurance will still pick up the tab for what you’re owed (but only under the same conditions as above).

Help in your hour of need

Of course, late payment happens for all sorts of reasons. So long as you're in the know, there's ways to deal with that.

But if a client refuses to pay your fees based on the quality of the services you've provided them, it pays to know there are instances when your insurer can step in and help.

If you want more advice on how professional indemnity insurance protects your business, you can call our team up on 0345 222 5391.

Image used under license from Shutterstock.