By Carrie Kolar
Being an entrepreneur is difficult. You’re responsible for the success or failure of your business, and one of the most important elements of success is actually getting paid for your work.
The best case scenario for any business is consistently getting paid on time; the worst is when clients delay payment, push back on the amount they owe, or refuse to pay you at all. Not getting paid for work that you’ve done can be potentially deadly to your business.
All entrepreneurs are at risk of running into the worst-case scenario. Here are some simple tips to help you minimize this risk:
Have a contract or credit application. The first step to protect yourself and minimize the risk of unpaid invoices is having your client sign a contract or credit application. Contracts are legally binding documents that clearly state the work and payment for your project or client relationship. Having a contract protects you from fraudulent client claims and provides you with legal recourse if your client refuses to pay.
When it comes to contracts, anything is better than nothing. You can find sample contracts on the internet that you can download and update on a client-to-client basis. For greater protection, give these samples to your attorney to develop a solid contract to use with each client–it’s worth the cash outlay to ensure that there are no loopholes. Credit applications have a dual purpose. They set the contractual terms with your customers and also give you information to make sure your prospective client is creditworthy.
Be sure to require a deposit/retainer. A deposit/retainer, or a portion of your fee that’s due up front, serves the dual purpose of reducing the size of your risk and indicating your client’s ability to pay. If they can’t pay the deposit, then they probably can’t pay for the work.
To minimize your risk, include a deposit clause in your contract or work agreement, and don’t begin the project until you have the deposit in hand. If a client makes excuses for not paying the retainer, the real reason may be their inability to pay now or later, that they don’t intend to pay, or that they will pay only if the service turns out to be successful for them.
Be persistent and resend the invoice. It is true that clients can be forgetful, lose the invoice, or are just plain slow. Resending invoices reminds clients that they need to pay. In this case, persistence pays off. If your clients learn they don’t have to pay you on time, they won’t. You can remind clients that they owe you by calling, emailing, and resending invoices via both email and snail mail. Continue reminding them until the invoice is paid.
Take stronger action when an invoice is 90 days past due. If a client still has not paid you when an invoice is 90 days past due, it’s time to take stronger action. According to the Commercial Law League of America, there is already a 26 percent chance of not collecting when an invoice hits three months past due. Past that date, the likelihood of collecting continues to decline at a rate of more than 1 percent per week.
If you get to this point, something is wrong and just repeating your past collection activities is not likely to result in payment. When collecting hits that point, send a final demand letter or have your attorney send a final demand.
Use a debt collector. If your client isn’t paying up, use a debt collector. Using a debt collector has a number of benefits. Some collectors are experts at maintaining client/customer relationships. Also, it sends a message to your client that you are serious about getting paid and are not going to continue accepting the same excuses or explanations as you have for the last three or four months.
Debt collectors work on a contingency basis, so there is no cost to you unless they collect. Since they only earn a fee when they collect your money, they’re motivated to move quickly, and they have numerous professional tactics that they can use to encourage payment. A few also have in-house law firms and can arrange for litigation on a contingency basis if that is the only way to get paid. A collection agency’s attorneys will be specialists in collection litigation and are much less expensive upfront then your regular attorney who works on an hourly fee.
To get the best result from a debt collector, find a collection agency that specializes in commercial collections, which is very different from collecting from individuals who owe medical or credit card bills. The collector’s ability to understand contracts and how business works can have a dramatic impact on the collector’s success rate.
To check the bona fides of a collection agency, look at online reviews, their BBB rating, and whether they are members in the IACC (International Association of Commercial Collectors). When you’re working with a debt collector for larger accounts, make sure you know who is going to do the actual collection work and that you are confident the person can do a great job.
Collections: The Bottom Line
The health of your business depends on you getting paid for your work. To keep your business and bottom line healthy, be prepared to protect yourself at both ends of the transaction. Have a contract and require a retainer before you start a project, and don’t give up if a client does not pay or pushes back on payment at the back end. Getting paid may only require a few extra calls, or you may have to call in professionals to collect the money you are owed. Whatever the situation may be, remember that you have options.
About the Author
Post by: Carrie Kolar
Carrie Kolar is a copywriter with Jansen Communications. She works with and writes about small businesses like The Kaplan Group, a commercial collection agency that recently published the Credit Application Handbook.
Company: Jansen Communications
Website: www.jansencomm.com
The post Dealing With Deadbeats: What Entrepreneurs Need to Know to Get Paid appeared first on AllBusiness.com
The post Dealing With Deadbeats: What Entrepreneurs Need to Know to Get Paid appeared first on AllBusiness.com.