This guest post by Erika Napoletano first appeared on the RedHead Writing Blog.
30…60…70…86…124 days later, there’s still no check in your mailbox.
The other damnedest thing is that the client was probably all up in your grill when they needed something done. And now that you’re looking for the cash, they’ve gone down-periscope.
I’ve always found it amazing how difficult it is to communicate with people to whom we owe money.
Just this morning, I emailed two contractors with the following information:
1) I’m out of town
2) I arrive back home on Monday
3) I’d be sending them a payment on Monday
4) I’d have an ETA on full invoice payment on that date as well.
It took me 2 minutes to be 100% honest so they can plan their finances.
So how do you handle a client that won’t pay? I’m sure there are plenty of you with tips to share on the subject — and I look forward to hearing them. But I’ll start with things we can all do for our businesses that can help alleviate the Kobiyashi Maru of business: the No-Pay Scenario.
Get an Ironclad Contract in Place
Before you commence a project, state your payment terms loud and clear. I have a simple two-page Scope of Work that’s been reviewed by my attorney. It’s ironclad, will hold up in court, and states:
- How I get paid
- When I get paid
- What I get paid
- What happens if my invoices are paid late
- How we settle disagreements if we disagree about something
In fact, I cover all of that in a paragraph. Here’s what it looks like:
To commence work, a 50% deposit is required. RHW Media, Inc. accepts checks and online payments via eCheck and all major credit cards. Regrettably, work cannot commence until commencement funds are on deposit. RHW Media, Inc. does not engage in trade unless you have an awesome Ferrari in showroom condition with pink slip and keys. Balance on all projects is due Net 10 from invoice date upon project completion and will otherwise accrue a 10% late fee beginning on the 11th day following the invoice date. All work contracted during the project period that is above and beyond this scope of work will be billed at project completion (I call this “when we’re done”). All additional work must be agreed to, in writing, by both client and RHW Media, Inc.
I didn’t used to have late fees, but you can bet your sweet ass I do now. Why? Because I am more than happy to wait for you to pay me whenever you feel like it. Just like my credit card companies, my landlord, my car finance company…and they charge me for taking my own sweet time to pay up.
On occasion, clients have an Independent Contractor agreement that is part of their standard practice. In those cases, I simply add an addendum to my Scope of Work, saying we’ll be abiding by the agreed upon terms in that agreement. My late fees, however, still apply.
Want to make sure clients can’t come back later and say they had a problem with your work? Work in an Acceptance Clause. Mine looks like this:
Acceptance: From draft submission, client has 5 days to review and respond with feedback. We believe in keeping your project moving! If we don’t receive acceptance/requests for revisions in 5 days (weekends are not “days” – those are days we ride bikes), we’ll assume you feel the work is Pulitzer-worthy and in no need of additional revision.
And get it all in writing. I’m personally not a fan of snail mail for contracts, so I use an online document signature service called EchoSign. It’s free for up to 5 documents per month (you can get another 5 for free if you agree to let it post a Tweet for you when you get a document signed…oy). It sends you a PDF when everything is signed. File this away, mkay?
Now, you’re welcome to steal my Scope of Work verbiage. If you do, get it reviewed by an attorney. You want to make sure both your ass AND your clients’ collective asses are all covered. Money’s a bitch — but only if you allow it to be.
Project’s Done — Get Paid!
Are you lazy about invoicing? Quit that shit. I talk to more talented business owners about cash flow problems than anything. Mine’s getting better every month, but invoicing is something I’ve never had a problem with. Here are a few steps that can help you get paid faster:
- Make it a reflex: Invoice the day you deliver a project.
- Retain Rights: If you do creative work (web dev, writing, design, etc.), consider an additional clause in your Scope of Work like I have (following). This makes sure that people can’t pay you a deposit to get started and then legally use what you create without ponying-up the final dolla-dolla:
- “Right to all materials created under this Scope of Work will be released to the client upon receipt of final payment for services rendered. Until that time, all rights are reserved by RHW Media, Inc.”
- Get a reliable invoicing system. It’s not Paypal, I assure you. I’ve talked about multiple invoicing systems that all have auto-generated reminder capabilities.
- Accept online payments. Seriously — if you want to make it easy for clients to give you excuses like “check’s in the mail”, skip online payments. But when you make it easy for people to pay you, you might find that they run out of excuses. You can write the transaction fees off on your taxes at the end of the year.
Still Not Getting Paid…FML (How to Fix It)
It sucks. You can’t drive off a car lot without signing a metric ass ton of paperwork saying you’ll pay. You can’t show up at the doctor’s office and expect to be seen without handing over your co-pay.
And now a client thinks it’s OK to go down-periscope on you when you’ve delivered everything contracted — to the client’s great delight, on their timeline, and with a smile.
First, stop with the emails when you’re trying to collect funds. Pick up the everloving phone.
Don’t have a phone number? Find one.
If it’s been this difficult to get paid, you’re probably not interested in going through this again and the client is off your “favorite” lists. Let’s get paid.
1. Leave a voicemail for your contact, stating that you’re following up on why payment hasn’t been made on your invoice. You’re sure it’s an oversight, but the invoice is now X days past due. Would they kindly return your call within 48 hours with an update and expected timeline?
2. No response? Not uncommon. Find their supervisor. Just call the company’s main line and ask to be put in touch with John/Jane Doe’s supervisor. Got voicemail? Let them know who you are, the date work was completed, and that you’re having a dickens of a time getting paid. Would he/she call you back within 48 hours?
3.No response? Not uncommon. Call that receptionist back and ask to be put through to Accounts Payable. At this point, offer to send them a copy of your signed contract and that you’re about to pursue collection measures due to nonpayment. You’d LOVE their assistance in getting this worked out!
Now, when you’re dealing with a smaller company without these ladders to climb, it’s harder. The whole company can be one person and they can hit “ignore” every time you call.
When all else fails, be prepared to write-off the invoice as a bad debt at the end of the year. Keep track of all of your collection efforts (as the IRS might want to see them) and call it a day. You could also pursue hiring a collection service for larger invoices. They will screw up your client’s credit and go after them with guns blazing. Should they recover the funds due, you’re looking at fees ranging from 10-15% of the invoice total. If some of everything is better than all of nothing, this might be a viable solution.
So…on that “Getting Paid” thing
The best defense isn’t a good offense. It’s being a smart business person. Have a contract that clearly spells out terms. Get a grip on your finances and don’t be a lazy invoicer. Also, bill retainers in advance instead of in arrears (always smart). If problems arise getting paid, run it up the ladder. You know your contract is ironclad and if they’re not paying, be firm and request a response. Run it up the ladder if you need to. In the end, be prepared to write it off if all else fails. Move on — and think about this:
Why did you decide to do business with this company in the first place? Were there any warning signs that you might have problems later on down the line?
Chances are, the answer is yes. So stop doing business with those people and start doing business with people who understand that cash = work. My world is filled with wonderful clients that pay me on-time and cause me zero stress in the payola department. I can only hope I cause them zero stress in the product and quality departments in return. We can ALL think of ways to do better in business — but getting paid, and in a timely fashion, is usually a byproduct of committing to doing better business (and with better people) on every level.
Now — have ideas for the others here on how to get paid (or what to do when you can’t get paid)? Pony up and share!
Image courtesy of Flickr user velo_city
Erika Napoletano lives in Boulder, Colorado and is the Head Redhead at RHW Media, a brand strategy firm that helps people get UNstuck and over those annoying problems that keep them from being awesome.
She’s been hailed by Forbes as a “spinless spin doctor” for her BS-free perspectives on business, marketing, branding, and life in general.
Erika is also a twice-published author, including The Power of Unpopular (Wiley 2012), a columnist for both Entrepreneur Magazine and OPEN Forum, a recent speaker at TEDx Boulder 2012, and speaks at conferences across the U.S. on the inherent power of truth in business… or as she refers to it, the power of unpopularity. Learn more about her at www.erikanapoletano.com.