One of the frustrations being a business owner is the failure of clients and customers to pay you for your services or the goods you sell. All types of businesses face this problem, including contractors, suppliers, medical providers, landlords and even attorneys. The failure of clients and customers to pay not only affects your cash-flow, but also requires the expenditure of additional time and money in the attempt to collect past due amounts; time and money that could otherwise be used more productively for your business. Slow payment or nonpayment hurts cash flow, and cash flow is king in a small business.
There are simple steps you can take to increase the likelihood you will be paid for your work or products you sell, or if you are not paid, make collection of the unpaid balances easier. Some of these things are elementary; yet we see businesses fail to do them on a regular basis.
1. Set the Expectation Up Front
The first basic step is to discuss the payment expectations upfront. Will there be a down payment required? Will the client or customer receive an invoice with payment expected in X number of days after receipt of the invoice? Will there be periodic invoices or one invoice upon completion of the work or delivery of products? Will the work be charged hourly, at a flat rate or a mixture of the two? Setting the expectations up front will make it more likely that you will get paid.
2. Put it in Writing
The next basic step is to put your agreement in writing. Contracts do not necessarily need to be many pages full of legalese, though short agreements often miss crucial points. The writing must include all basic term of the arrangement or transaction. You should not leave important matters to assumptions. While oral contracts are enforceable, written contracts avoid the he said/she said problem. Written contracts avoid misunderstandings, keep the relationship on track and make proving the contract terms in court, if need be, a sure thing.
3. Include Key Terms to Protect Yourself
Perhaps most importantly, written contracts prepared by the business owner protect the business owner and can include terms that encourage payment. For instance, the contract can impose interest and/or late fees on past due payments. The contract can impose attorneys’ fees and court costs if you must hire an attorney to collect. Attorney fees are not recoverable in a civil action unless the contract (or a statute) provides for it. Most statutes that provide for attorneys fees do not protect the business owner. Written contracts can also state which state law applies and where litigation must take place. Of course, you will want Illinois law to apply and for the forum to be your local circuit court. This is especially helpful when you are contracting with an out-of-state customer/client. These provisions will make a person think twice about not paying.
4. Get Payment Up Front
Another simple step to ensure payment is to ask for and receive payment upfront. Attorneys have traditionally done this through the use of retainers. Contractors will often ask for a down payment. Doctors ask for payment at the time of the appointment unless there is insurance. There is nothing wrong with asking for money upfront, especially if you will be incurring immediate costs prior to starting the actual workor production and shipping of the product. The more money you can get up front, the less risk you have of not getting paid.
5. Create a Payment Schedule and Stick to It
Closely related to getting payment up front is to create a payment schedule and stick to it. If you are lax about requiring payment (or setting a schedule to begin with), your client/customer will get the signal that payment is maybe not important to you. We all know that is not true, but there is a subtle psychology at work. If you are clear about the expectations, demand some payment up front, set a schedule and stick to it, you will send the message that payment is important, and that message will come through loud and clear.
6. Ask for Credit Card Information
Another step to ensure payment is to obtain authority to charge the client’s/customer’s credit or debit card account for the amounts owed. Consent needs to be by written agreement or authorization of the client/customer. Credit cards are easy for you and the client/customer, and they give you better assurance you will be paid.
This is not an exhaustive list. Different types of businesses develop different practices. Not everything will work for every business, and not everything is practical. The important thing is to take the steps that are available to protect yourself. Set the expectations. Do not let your clients/customers treat you as their bank. You are a business not a bank. Slow payments or no payments will hurt your bottom line so take appropriate steps to increase the likelihood that you will be paid.
If you find yourself owed money for work you have done or products you have delivered despite your best efforts to collect what is owed and need the help of a lawyer to get paid in the Fox Valley area and collar counties to Chicago, contact us at [email protected] or call 630-523-0543.