GASP!!!!!The letter was ominous looking. The contents were even more chilling. With no warning a major client had unceremoniously gone into bankruptcy and we were stuck going to court to attempt to collect our outstanding invoices. What is worse is that loss is my fault. I broke my own rules and did the job on a handshake agreement and now I'm responsible for the consequences.
100% Responsibility
There's a little sign on the wall near my desk that reads 100% Responsible. About 25 years ago I ran across the philosophy from Hyler Bracey at The Atlanta Consulting Group. It's a deceptively simple idea - we are all 100% responsible for our organization's and our personal success and results. What that means is you can't expect your clients or customers to look after the best interests of your business. It's not their jobs … it's your job.
Why Companies Don't Pay Bills On Time
It's easy to imagine a greedy, dollar-driven super villain deliberately plotting to screw over suppliers. It may be a satisfying picture but in the vast majority of cases it isn't true. Things are tough and every company is fighting to stay in business so they build financial stability by getting money from customers sooner, paying bills at the last possible moment and building up cash to earn money from the float. Float is interest, etc. that you earn between receiving money and paying it. Of course there are some other reasons that are less sophisticated. Saying that it isn't easy getting some customers to pay bills on time would be like warning that you might see some tall guys at an NBA game. So what can you do?
Preventing The Problem
The time to worry about being paid is before you do the job. Don't be so eager to get some business in the door that you accept "Stupid Work." Take a moment to check out the company. Ask around, at least do a Google check. If it doesn't feel right, don't do it.
Ask about their payment cycle before you accept the job. Make sure you know the "rules." If the potential client starts to tap-dance it's a red flag.
Have a solid contract or work agreement. Please don't download one or use a generic contract from the office supply store. And don't even attempt to play lawyer and write your own. My attorney explained that he can spot an amateur contract at 50 yards and so can the worst lawyer in the graduating class. Do it right and hire a business attorney.
Put it in the contract. Define the scope of work; the terms of payment and what happens when financial and other contractual obligations are not met. Make the client's payment terms part of the work agreement.
Get money up front. Require a partial payment at the beginning of the project or order. Make sure this covers your key expenses and out-of-pocket expenses. 50% is not too much. If it's a rush job or something unusual ask for 100% up front and bill for overages later.
Have Sign Off sheets for each phase of the project. Ask the client to sign them and make sure they include an authorization for payment. What you are doing is establishing you own paper trail. More about it later.
Invoice immediately. I admit this is one of my biggest failings. I've been known to wait weeks, even months to bill after a job is completed. This is why I have an accountant. Don't wait until the end of the month (an antiquated 20th century idea), prepare the invoice in advance and send it 30 minutes after the job is completed.
Be Easy To Pay. Let them pay by credit card and PayPal ... the idea is to make paying you as convenient and painless as possible.
Don't discount thinking it will encourage quicker payment. They'll just take the 5% anyway. Discounts don't work. Instead of discounts, see the suggestion above.
Collecting
Okay, take a deep breath. What is the client worth today and long term? There are ways to collect without destroying the relationship.
1. Be personal - when the bill is due pick up the phone and call the client. Emails are too impersonal and can be deleted. Often a gentle reminder that the bill is due is all you need. Ask if there are any reasons that the payment is delayed.
2. Be persistent - be prepared to re-bill. You can include copies of the Sign Off sheets showing that the invoices are authorized.
3. Escalate - move up the food chain to Accounts Payable and ask if the invoice has been received and is being processed. Don't be confrontational but be sure to find out when the payment is scheduled. Get a name and an email address to follow-up.
4. Play Hardball - the last resort. Turn off the emotion. Don't threaten anything you are not prepared and capable of carrying out. At this point, the less you say the better. Don't mention legal action and let your attorney send a "get well" letter.
Depending on the size of the invoice and your State laws you are looking at Small Claims Court. If it's above the limit it's a civil suit. In a civil suit the court looks at the preponderance of evidence. That means you have to back up your claim with as much convincing evidence as it takes to prove what you say is true. This is where your paper trail pays off. Those Sign Off sheets are golden.
Gentle Persuasion
Here's my insider tip. If nothing works and you can't afford to sue, report them to Experian, TransUnion and Equifax as a bad debt. It costs less than $100 and corporations are very concerned with their credit ratings. A few years ago a major Fortune 500 company refused to pay a $750.00 invoice. After most of the things I suggested failed I reported them as a bad debt and forgot about it. About 9 months later I received a telephone call from one of top financial executives. The corporation can't have bad debts on their credit report. The bill was paid in a week. Don't be afraid to do the unexpected but don't cross the line. There are clear laws that define what you can and can't do to attempt to collect a debt. In short - be cool.
Getting Paid
An astonishing amount of work is performed with nothing more than a handshake agreement. It works … until it doesn't. Remember you are 100% Responsible for selecting your clients and getting paid. Don't apologize for being professional, having a legal agreement and wanting your money on time. If a client is late give them the benefit of the doubt and negotiate. More often than not the problem isn't the client it's how Accounts Receivable is processing invoices. Make the client your advocate and preserve the relationship. The big idea is to get paid and also get the next job.
If you liked this article then check this out:
Has Advertising Killed Facebook? The Truth Behind Selling Privacy
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Andy Johnston is an multi-faceted communication professional with deep experience from strategic planning, to messaging, to marketing, to media, to events, to training, to creative direction … and there are several other ”to’s.” Andy is known for his energy, creativity and his unique ability to discover the key results that must be generated – and then to develop ingenious ways to engage and motivate audiences.
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