How to Avoid Deadbeat Clients
Paula is having problems getting customers to pay for services. Have you ever had problems getting clients to pay? Tell us how you solved the problem.
Comment
Email
RSS
DiggWhen I ran a consultancy business overseas I always found the big mega million dollar companies were the worst payers – far worse than my smaller clients. I would have to wait up to 6 months to get paid even small amounts.
Eventually I hit on the following scheme. When a payment from a major company was seriously overdue I called the company head office and asked to speak to the chairman/CEO. Invariably I was put through to his secretary and I asked for the executive’s national identity number (equivalent to social security). Naturally the secretary would refuse & ask why I wanted it. I explained that I had been forced to take legal action over an overdue account and I wanted to make sure the summons was served on the correct top executive. The secretary would take down the details.
Within a couple of hours I would get a call from the financial department or the original purchaser explaining that there had been an oversight and I would be paid the next day. The check usually arrived within a couple of days after that.
I am a management consultant that deals with a variety of financial and operational matters for companies. My engagements tend to be longer term so I bill on a weekly basis and expect a payment every week. I believe that mitigates my payment risk. Trust is another important element as some of the other comments have pointed out. If things really go sour, maybe small claims court is a potential vehicle for recovery.
Feel out your clients!
I had an experience w/ a client who didn’t want to pay what I was worth, despite telling him upfront. I didn’t want him, but I was in a rough spot, and they lost their computer guy. The business was a 40 minute drive for me.
On one particular project, I let them know that they had unrealistic expectations, Doing what they wanted was like buying a brand new porsche for 10K.
Being so super, I met most of their needs, with innovative workarounds, but finally, I gave in. This guy was not paying me enough to work for him, as hard as I worked for him, for as long as I was working, and he gripped about it!
Worst part was I should have known he would be trouble. He treated his wife poorly (in front of a stranger!), was extremely disorganized, was open about things that I didn’t want to know.
I was going through a divorce at the time, and decided that I am going to start living for me. I told the client I would be unable to continue working for him, due to demands, and pay issues, but I would support the project, and transfer knowledge to whatever party decided to take over.
He tried to get me to continue, but never once offered close to what I make now.
I jacked my rates up to 35/hr (from 25 I was in my mid 20’s), and interestingly enough, I get MORE clients, closer to home!
I started a small web services firm last year, and only have a few clients, but it pays the bills. I have all of my coders and deveelopers write back doors into all applications that allow us to essentially shut down their entire system if they do not pay. Never once had to use it though, it really is all about trust and delivery.
I am a graphic designer (http://www.LisaJackson.biz). I used to require 40% down. Many didn’t pay in full. Some paid partially when invoiced, but not in full. Then I required 50% down, but 100% of what is owed before delivery of the project. Now I am requiring 100% down from some projects. I thought this would mean less work, but it doesn’t. People have credit cards, so they do it. They just don’t like to pay after they’ve received their product. It may be laziness. It may be that they don’t fear small businesses. Small businesses lack the power and money to sue people and make them pay. I do make people sign contracts.
After 1.2 Million dollars in bad debt,bad checks and dead beat clients, we switched from Net 30 Days billing to Credit cards, it has an incredible effect on cash flow. The volume of business drops, but you don’t lose sleep anymore over past due customers.
The one word I have not seen mentioned in this article or comments is “trust”.
When you extend Net 30 payment terms to a customer, you are telling them, “I trust you, I want to have a continuing business relationship with you”. That is a very powerful message, and one that is very appreciated by your customer if they have any business sense.
On the other hand, when you insist on large upfront payments (80% is ludicrous!), you are saying, “I want to get your money, but I don’t really trust you”.
Seems so obvious, but trust needs to be a two way street. The client needs to trust that you are going to deliver, and you need to trust that you are going to get paid.
I believe all of these schemes for downpayments larger than 50%, credit cards, passwords, etc… communicate to the customer loud and clear: “I don’t trust you”.
That is not a way to conduct business in the long run, and I would prefer not to use any consultant that doesn’t understand and appreciate that any business relationship is a two way street.
Having to change hats from what you do best to a bill collector can not only affect your productivity, but potentially kill your business if your receivables become too overbearing. Instead of focusing on bringing in good clients, your time is taken up in dealing with the ones who don’t pay. In writing business plans, one would assume you are dealing with people who truly want to start thier business and having a professional like yourself do the work that will get them funded for their new company should be priority one - but some clients just don’t think with a business mind yet…
Rather than concentrate on collecting from deadbeats, you might find it more to your advantage to get a business line of credit. This way, you won’t have to dip into your personal credit, so your business can take care of itself. Credit crunch issues wind up affecting the economy in an “upstream” fashion, where those that provide services to the end user suffer the most, since consumers don’t have the ability to pay on time. Being proactive and obtaining credit for your business while business is good will save you tons of frustration throughout the life of your business - in good times and in bad.
As a sales and marketing strategy consultant, I began following the advice of a very wise mentor several years ago. I no longer invoice for final payments. I require a deposit of at least 50% to begin the project, with payment in full upon delivery of the project/report. I leave their office with no balance due. About a week before delivery, I email a reminder that we have a meeting scheduled for xxx date and time, at which time the final report will be rendered and final payment is due. Most clients now just hand me the check when I sit down - before I even retrieve the written report from my briefcase.
I am a lawyer and usually get retainers up front. However, since the economy has been a bit dicey, I have been experimenting with installment plans on “flat fee” matters. I find that if I spell out exact time frames for payments, or even tie payments to specific events in the case, it helps clients to prepare to pay. Nowadays, their are opportunities to do payments by credit card, and you can get the client to authorize installments ahead of time. I disagree with the post-dated check suggestion, since banks usually have a policy against writing post dated checks, and there is that bouncing problem. Of course, when clients don’t pay you have to have the guts to sue them–small claims works great for small fees. Most people will actually respond to a claim before you go to court.
This person could also require a check for the remaining 60% of the fee when the business plan is handed over, the check wont be deposited/cashed, until the client okays or signs off on the plan. This guarantees payment.
Here’s a solution for Paula. Put a watermark (such as the words “final draft” 
on each page of the final business plan that can’t be removed without a password. Upon receipt of final payment, you can either send the client the password or send them a clean copy.
Features-
Should you use carrots - and sticks - to nudge your employees toward better health? more -
An entrepreneur says he's found an endless source of cheap energy. Trouble is, it violates the laws of quantum physics. more -
Six are dead in Kentucky. Should business owners have the right to ban guns from the workplace? more -
These five next-generation green vehicles will be faster, more powerful - and cheaper. more -
A small U.S. tour business sends animal lovers into the bush to help threatened species. more -
A rural indie channel is paying $25 million to pair the shock jock's chatter with tractor pulls and Christian cowboys. more
As a physician who recently closed my private practice in psychiatry, I’ve had some collection difficulties over the 30 years I practiced. Part of the reason for my closing (15-25) years “early”was due to my frustration with managed care, insurance in general and certainly Medicare!
Due to the deteriorating quality in the medical arena in general, I kept backing up–1st, from treating the chronically ill (and periodically psychotic) hospital population (if I saw a person for a half and hour, I charged that, if they were too ill to talk more than 5 min. I charged them that) b/c insurance mandated early (and dangerous discharges when the person was still ill, and/or the medication wasn’t yet effective, and there was no discharge plan in place–the liability was too great),2nd, from those with any litiginous potential (chronically or periodically suicidal, homicidal,eating disordered, severe personality disorders etc,.)and 3rd and finally,settled with the “walking wounded”, the “worried well” and other similar disparaging titles given to those with problems with living, marriage/relationships, their children etc. who while “well” in one sense (i.e. not psychotic, not chronically dysfunctional, not on disability, and not working)who while able to work and function in the usual sense were often desperately unhappy. How therapy helps these people is improving (among other things) their sense of happiness, and their general functioning.
They usually have excellent insurance and pay their bills on time.
Ten or more years ago I dropped “off panel” of all insurance companies. The violations of patient privacy were enormous, and I was uncomfortable with that. I was also mad about not being paid very much. This forced those patients who had insurance to use ‘out of network’ benefits or to pay the complete bill.
I eventually learned to drop deadbeats early (1 mo. behind–and we’d ‘take a break’ until the bill was paid,), insist on co-pays (and they handed me the money directly as I didn’t have a secretary–most docs are uncomfortable with the cash angle and handle it thru underlings)or the full amt. at the time of the visit. Once I knew they were trustworthy, monthly billing could be arranged, but that too, had to be on time. Since I took the money and discussed it w/ them directly, it was obvious who they were cheating by not paying, and I emphasized that the charge was my living. That helped pull some out of the clouds. If any of them left abruptly with a huge accts. receivable, I would call them, if there, was no response, I would send a note, indicating that after 90 days, the account would be turned over to collection (which hardly ever worked), or to an attorney for collection (which also didn’t work much). As I came to see my work as a product, like anything else (hopefully w/ empathy and compassion and assistance attached), I realized that as a helper type I couldn’t let my altruism blind me to the reality of money. (I still never charged anyone for more time than they took–amt. determined in 15 min. intervals). I didn’t hesitate to turn people over to collection, or to save “bounced” checks until the beginning of the next month and take them personally to the bank to cash them (undoubtedly an unpleasant surprise). But medicine in general has become a very hostile place–and what was truly fun and interesting and worthwhile in all senses changed into a something that felt like being on an endless treadmill dealing w/ nasty, entitled people who were late paying (that was the insurance companies–not so much the patients themselves).
If I ever re-open a practice, what I will do differently this time, is to make sure a potential patient knows that the full bill is due at the time of the visit (until trustworthiness is established)-and to let the patient file his or her own insurance. Now that I know that I could effect a person’s credit rating, I would make them aware of that and do it if it became necessary.
I came to see all of this not only for what it is but as a necessary lesson for some in maturity, responsibility, and the fact that actions have consequences. And wouldn’t you know it? If they had trouble with my bill, generally most of the problems they had come to see me about were caused by the same immaturity, irresponsibility, and lack of empathy for others. The problems and the ability to pay generally got better together. If a person cheats in one area, you can be sure they are cheating in others–and whether they know it or not, they are reaping the consequences. That’s why it is absolutely necessary to set the above limits (and others as well). It can be thought of as “helping” another person evolve into a mature, compassionate person who functions better in the ‘real world.’ So there you go. Who would have thought that turning someone over to collection was therapeutic!