Your client refuses to pay your placement fee; what options do you have?
Uncover the secrets to safeguarding your agency's income when clients refuse to pay. From airtight contracts to legal action, master the art of fee protection.
Chris Allen
Co-Founder & CEO
Placement fees are the lifeblood of recruitment agencies, but non-payment is a common issue, affecting up to 60% of agencies according to a LinkedIn survey in 2024. When a client refuses to pay, recruiters must understand their options to protect their hard-earned income and maintain their business's financial health.
Understanding your placement agreement
The foundation of any successful fee collection is a well-drafted placement agreement. Placement fees typically range from 15% to 35% of the candidate's first-year salary, with an average of 20%–25% for permanent placements. Agreement types include contingency, retained, and flat-fee; contingency only pays on a successful hire, while retained usually involves staged payments and higher specialization.
Contract clarity is critical: specify payment triggers (e.g., start date, post-guarantee period), timelines, refund/guarantee policies, and what constitutes "successful placement." Retainer models can provide upfront security for smaller agencies.
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Legal action
Legal action is time-consuming and expensive; median time to small claims court resolution is 6 months, and civil court takes 12–36 months, with costs ranging from $50–$500 for small claims fees to $5,000–$50,000+ for civil litigation. Send a formal, well-documented demand letter before taking legal action, referencing contractual clauses, outstanding amounts, prior correspondence, and a response deadline; over 40% of disputes are resolved after receiving a formal demand letter (LinkedIn contributor poll, 2023).
Verify courts' jurisdiction and ensure all contractual procedures have been followed before filing a lawsuit; prepare full documentation and choose between small claims (for amounts up to $10,000–$20,000) or civil court for larger or complex disputes. Gather essential evidence, including signed contracts, proof of introduction, candidate start date, invoices, payment reminders, and all correspondence; inadequate documentation is a primary reason for recruiter losses in court.
Be aware of the statute of limitations for pursuing legal claims (typically 3–6 years for contract claims, varying by jurisdiction).
Consequences for the client
Legal judgment may impact the client's credit, reputation, and future procurement/vendor status; a public record of legal action or county court judgment (CCJ) may appear in due diligence checks. Unpaid debts and litigation may damage a company's standing with recruiters and in candidate markets; over 75% of recruiters say they decline future business with clients known for payment issues (Recruitment Agency Survey, 2024).
Persistent non-payers may end up blacklisted or relegated to lower priority by agencies, with recruitment networks and ATS forums recommending adding "persistent non-payers" to shared blacklists. Winning in court does not guarantee payment—enforcement may require further legal action and costs, such as garnishment, liens, or bailiffs, each with associated fees often ranging from $500–$5,000+.
Prevention is the best protection
When faced with a client who refuses to pay, recruiters must understand their placement agreements, pursue amicable resolution, and be prepared for alternative dispute resolution or legal action if necessary. However, the best approach is to implement preventive measures from the start: thorough client screening, detailed contracts, upfront payments or retainers, and regular communication. By taking proactive steps to mitigate risk, recruiters can focus on what they do best—winning clients and placing top talent—while protecting their agency's financial health and reputation.
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