Getting Paid: 12 Points to Consider To Improve Your Collection Efforts

Trying to collect money from a client or customer can be one of the most frustrating experiences for any business owner.  You do a great job – the customer seems very appreciative but you end up waiting too long to receive the money you are owed.   To help insure prompt payment you should consider the following points.

  1. Get paid up front.  This is not rocket science – if you are able to collect the money before you do the work you never have to worry about getting paid.  If your customer really wants your service and you require payment in advance you have much more leverage to get those funds in a timely manner.  The motivation of your customer to pay in a timely manner once they receive your goods or services can be greatly diminished.
  2. If you can’t get paid in full up front – make sure you get a significant deposit.  If the market or the actions of your competition do allow you to be paid in full up front – try and get as much as you can as early as you can.  1/3 down when you sign the contract, 1/3 when you start the project and 1/3 when you complete the project.
  3. Part of any discussion with your customer  MUST include a discussion about how much the work will cost and when you expect to be paid.  The time to have this very specific discussion is before you start work.  If you are specific and the customer hesitates or admits they could not pay you for 90 days, then you have to decide if these terms are acceptable to you.
  4. This next point is very important – and a tough one to realize.   You are better off with no customer than with a customer who will not pay!   Why?   If you spend time providing services to a client that will not pay, you are expending efforts for no benefit.   If you were not spending your time providing what may end up being free services, you could have used that time marketing your business to attract customers you want (ones that pay!).   You also could have spent your time doing something you enjoy outside of work.
  5. Have a clear contract or fee agreement with your customer.  See my prior blog post on what a customer fee agreement should include:  http://boergerlaw.com/archives/297
  6. Don’t let an outstanding bill get stale.  If the bill was due on March 15 and it was not paid by March 16 – give that person a call.  There is an old expression that the squeaky wheel gets the grease and to a large extent this is true.  If your customer is having financial difficulties and cannot pay several bills, he or she may pay the bill for the person who is squeaking the loudest.  Don’t be afraid to squeak!
  7. Consider the use of a collection agency.  You need to be careful with this as there are good and bad collection agencies.  However, using an effective collection agency may be an excellent choice for your business.
  8. Evaluate your business operations.  How many time in the past 6 months have you had to send a client to a collection agency, been paid more than 60 days late by a client or had to file a lawsuit to collect money you are owed?  If the answer is many times, then you really need to step back and evaluate what you are doing.  I had lunch with an attorney friend who commented that they are suing their clients “all the time” to get paid.  That person needs to do a better job selecting their clients.
  9. Be very selective in taking on new clients.  A client who does not pay is worse than no client at all.  Yes – this is a duplicate of what I said in number 4 above but it is so fundamental it had to be repeated.   If you have been in business for several years I suspect you have an inner voice that tells you when someone may be trouble.  Be very attentive to that little voice – it is probably right most of the time.
  10. If you still cannot get paid – small claims court may be a good option.  Under recent changes to the Massachusetts’ small claims law, you can sue in small claims court for amounts of up to $7,000.  You can handle a small claims matter without the assistance of an attorney and the added pressure of a judgment from the court may be a real benefit in getting your money.
  11. Consult with an attorney and file a lawsuit.  If you get to this point things have gone terribly wrong.  Filing a lawsuit to collect money is something that is done on a regular basis but litigation is expense, slow and generally very frustrating to most people involved.  You also need to carefully evaluate how much you hope to collect versus the legal expense to collect the funds.  Finally, obtaining a judgment does not guarantee you will get paid.  There are no debtor prisons in the US and you can’t get blood out of a stone.  Spending $10,000 or $15,000 in legal fees to obtain a judgment when the client has no money may do very little to obtain your ultimate goal of getting paid.
  12. Get paid up front!

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