Show Me the Money – How to Ensure You Get Paid
Are you a business owner with unpaid invoices or slow-paying clients? Cash flow is the lifeblood of all businesses. Your customers MUST “Show You the Money” promptly when you deliver your products or services. Unpaid invoices can be life-threatening. To avoid these challenges, explain your expectations clearly and upfront. Before agreeing to provide products and services to a customer:
- Check out the client. Do they have a good financial reputation? Have they been in business long? When you bill or invoice a client, you are extending credit to them. Before making a “loan,” get to know them and see if they have the ability and resources to pay you.
- Communicate clearly and document everything. Setting clear expectations in writing before extending the credit is essential to proving that the customer owes the debt to you. What are the payment terms (how long do they have to pay your invoice (10 days, 30 days, etc.)); is there a late fee; is interest owed on late payments; do they have to pay attorney’s fees; etc.?
- Create a legally binding business contract. Hire an experienced qualified attorney to write up a standard business contract tailored to your business. If you are going to be able to collect everything owed, you must have the terms clearly set forth.
- Require a Security Deposit. Ask for a Security Deposit up front for clients that you do not know or if you are unsure whether they can pay you upon delivery.
- Set and follow a procedure for collection of payment.
- Invoice promptly and on a regular schedule in writing
- Give incentives for paying early and penalties for late payments
If your client does NOT meet your established obligations:
- DON’T harass them. Treat your customers with respect. Many customers have good reasons for not paying, and, given respect and understanding, will be glad to start a payment plan. Of course, do not threaten violence or use profane language. Remember, they can record or video your conversations. While the Fair Debt Collection Practices Act generally applies to third-party collection agencies, it can apply to businesses collecting their own debts. The best practice is to know and comply with the rules of this act.
- DO send collection letters. If your discussions or communication are not effective, then send them a letter promptly. The older a debt is the harder it is to collect. You need to act quickly to ensure that you maintain your right to the money owed.
- Be persistent and consistent. Persistently sending bills and reminders on a regular basis will usually increase the likelihood you will get paid in full. Don’t wait until the end of a month to send reminders or past-due invoices, send them as soon as they are due.
- File a claim. If you are owed less than $15,000, file a claim in Magistrate Court.
- Hire a debt collection agency. If your standard practices don’t succeed, then it’s time to hire a professional. Debt collectors write demand letters and track down debtors daily, so they are really good at it. Just be sure to hire a reputable agency that complies with FDCPA. If you hire a non-compliant, non-reputable agency, you could get sued and you probably won’t get your money anyway. If you need an agency, you might want to check out Commercial Law League of America’s list of certified agencies.
- File a lawsuit. If the debt is more than $15,000, hire a qualified attorney to file a lawsuit. In reality, most businesses should never reach this point. However, if your business routinely deals with amounts equal to or greater than this, it could happen despite your best efforts. If it does, properly completing all the prior steps listed above will greatly improve your chances of winning a lawsuit. While it is expensive to sue, most lawyers will handle your case on a contingency basis, so you only pay if you get paid.
Prevention is the best way to make sure your clients and customers “show you the money.” While you may have to invest some time and money upfront, the return on investment could be exponential.