Illumin Blog

NOTE: This is a long post in response to an inquiry about clients who don't pay, so if you want to whip through it quickly, scan the nuggets in bold.  :-)

Many businesses are experiencing challenges in this economy and one of them is getting paid for the services they deliver.

I've been on both sides of this, being the contractor who needs to get paid or the person in corporate who is the contact for a vendor awaiting payment - so these tips come from my own experience.

This topic is really an animal in breadth. Experience has taught me that the best way to avoid late payments is an airtight contract with a crystal clear scope of project deadlines and language indicating what occurs when payment is not received.  That being said, there will still be clients who may not pay no matter how diligent you are so take heart, you are not alone. Because this is a long post, I'll start with two awesome resources up front.

There is a great book called "How To Set Your Fees and Get Them" by Kate Kelly. It addresses the topic of outstanding collections and how you can set yourself up to avoid this problem, as well as fee setting.  It's one of my business "bibles." You can get it on Amazon for as little as $.01 used: http://tiny.cc/xzh58.

As a last resort, should you need to call in a collections agency, contact Jocelyn Nager, Esq. at Frank, Frank, Goldstein & Nager, PC. She is a very savvy collections lawyer and has a voice that could get even the most delinquent clients to pay.  She is lovely and a true professional: http://www.ffgnesqs.com/.

Here are some rules of thumb (in no particular order) and things I advise Illumin clients to do to mitigate late payments based on my own experience working with big and small clients.  Of course, consult with your accountant or lawyer.

1) Have very, very clearly defined letters of engagement, retainer agreements, expense reimbursement agreements, etc.

Be sure to include delivery dates and what will occur if payment is not received within the agreed upon time frame. For example, if you have a net 30 days, be sure to clearly stipulate that ongoing work will cease if payment is not received within a certain time frame after due date has passed. Say, 10 days or so.

I've worked for consulting firms and with clients that keep delivering service even when the client is very late in payment. It's ludicrous because any expenses (paying staff, travel, etc.) then comes directly out of the company's coffers when that money should be used for other things. The rule is: when they stop paying, you stop playing. In other words, do not move forward with your contract until you have the money in your pocket. Some people (the service provider) will say, "Well, we're halfway there already, why not finish the job?" Well, if they want you to finish the job that bad, they'll pay. Don't give your services away for free. Period!

Have different places on the contract for the key contact to sign/initial . This brings particular attention to deliverables and the client's part in making things happen. Think about when you rent a car. The rental company has about four different places for renters to initial and the customer service person describes each of those areas to the renter. Talk clients through the contract. Conversations verses just words on paper can resolve issues up front, thus avoiding potential issues later once you and the client are contractually engaged.

Call the AP contact at the client's firm within a few days after the invoice is sent to ensure receipt. Tell them nicely that following up to ensure receipt of invoices is standard procedure for your company so they don't feel singled out. Ask them if they anticipate payment to be on time. This confirms they have actually received the invoice and that they know you are tracking that.

2) Reconsider installment payments

Personally, I very seldom allow payment in installments. If the client is serious about the job, they can pay in full up front. What I've found (in my particular business) is that those who pay in installments are perhaps not as serious as those who put their money where their mouth is. Of course, this is a generalization, but I'm reluctant to offer installment payments. That being said, I have worked with very serious entrepreneurs who are simply managing cash flow so payment breakout is appreciated. But, again, deliver only as much as you are paid for. If there is more to do and you have not received the next payment, wait until you receive it.

3) Run a D&B (Dun & Bradstreet) report on your prospective client

You can find out a lot about the financial health of a company by doing a little research up front. This can save you pain down the road.

4) Find out, up front, who the key contact is in your client's organization for payments

Develop a relationship with the contact person responsible for accounting up front and be sure they know you will be speaking with them directly to ensure timely payment. If payments are late, you can refer directly to that person . This can help your key contact "save face" because often they have no idea what the hold up is themselves.

5) Be sure to have wording/clauses to let clients know that you can deliver only insofar as they, the client, do their part to help you deliver that service

If you have delivered your part and they have not acted/responded on their part, they could point the finger back to you which could cause friction and delay payment. Do regular checkups to ensure all parties are consistently in agreement on progress and responsibilities so you're not surprised when a client doesn't pay if dissatisfied with service, etc.

6) Have a conversation

Talk to your key contact and ask them to share what's going on. I used to hire vendors all the time in my corporate life and felt very obligated to get them paid in a timely fashion because I had a relationship with them. However, sometimes things were just beyond my control and Accounting or Finance had reasons for delaying payment. Respect that your in-house contact may have no idea what's holding up payment. Ask them to find out who you can talk to to resolve this issue or lay out a payment plan. If you can't deliver your service to them or their department or team because of outstanding invoices, that person may feel the repercussions and incite them to act on your behalf.

7) Have processes in place so there is consistency in how you deal with AR and these types of customer challenges

You should not rewrite the book each time. It's a time and energy waster. As the president/founder of your business, try to stay out of it. Leave it up to your AR peeps, a bookkeeper, a collections agency, etc. You are the relationship person so try to keep that intact.

8) Lastly, be pleasant but firm

If you can't get a response that is satisfactory, bring in a collection agency. These are tough times for many businesses and even though people may have the best of intentions, the rug can suddenly be pulled out from under them. Talk to a collection agency about how to deal with this issue with your client. Hopefully, they can recommend things that will keep them out of the picture and, thus, preserve the relationship. If not, you can send a certified snail mail letter indicating that you will need to engage a collection agency to resolve the issue. Be pleasant, but professional and firm.

It's your reputation and your money.