Nothing is worse than performing work and not getting paid. Its frustrating and stressful.
I’m sure that you want to avoid litigation which can be a lengthy process with legal fees usually starting around $3,500 and skyrocketing depending on the work. Litigation is also emotionally draining, causing sleepless nights.
With that in mind, here are some suggestions to avoid hassles with collecting for your work:
1. Get paid in advance. Unless my office is retained on a contingency fee basis, I require payment up front. Moreover, I only handle contingency cases when there is a deep pocket, such as an insurance company. You should demand payment up front too. If you collect up front, there is nothing to collect later.
2. Put everything in writing. Even though you may be able to enforce an oral agreement in court, a written purchase order or services agreement is much stronger and will go a long way towards enforcing payment terms. Usually the terms need to be crafted specifically and individually for each client.
3. Perform basic due diligence. If the matter is large enough, I would check online courts in your state. In New York eCourts, you can simply plug in the company’s name to see if there is any pending or outstanding litigation in New York. Even if you are able to sue, you may not be able to collect because there are other judgments ahead of yours.
4. Don’t wait to bill. Just yesterday a client called my office and wanted to sue on an invoice that was 90 days past due. He only sent out a bill two weeks ago. His customer’s cash flow may have changed or other bills may seem more urgent. For this customer, your invoice is only a couple of weeks past due. I advised him to wait 30 days. Bill your customers immediately when the work is complete or the goods are delivered. You will find that your invoices get paid more quickly.
5. Accept payment plans. If you have tried sending past due invoices and you are not getting a response, consider calling your customer and offering to break their balance into two to four monthly payments. Insist that they pay the first one right now, over the phone, as a sign of good faith. Then invoice them for the remaining monthly installments.
6. Don’t Wait. Get on them.. Once an invoice has reached 30 days past due, send the customer a letter asking for payment. Follow that up with a phone call a week or so later. Then send a second, more stern letter at 60 days reminding them that you may refer the matter to collections and/or report their delinquency to a credit bureau if they fail to respond. Follow that up with a phone call too. At 90 days, refer the matter to collections and make sure that you or your collections agent report the delinquency to a credit bureau (if you do a significant amount of work on credit, it is worth joining a credit bureau reporting service such as Equifax, Experian or TransUnion). If nothing happens within 30 days, discuss collections litigation with your lawyer. New York limits the time in which you may sue, so know the limitations in your state.
ABOUT THE AUTHOR:
Fred Abramson is a New York based attorney specializing in business law and litigation. In addition to advising small business owners, he has successfully represented a range of New York companies, from non-profits to executive search firms. You can find him on Twitter: @fredabramson, or check out his website and blog.