John Szymankiewicz is amazed at how often people don't want to pay their attorney because it seems like the one person they would want in their corner.
“How often do my clients not want to pay me?” said Szymankiewicz, a Raleigh, N.C., attorney who mainly serves small businesses. “Pretty often.”
Some small-business owners shame their customers into paying their bills by posting bad checks by the cash register or by not returning a repaired item until the bill is covered.
But some business owners have to take a more delicate approach and ask for money while trying to maintain a business relationship. And if the problem elevates, owners have to consider whether it is worth chasing down the money or taking a loss.
There are steps small-business owners can take to increase their chances of collecting payment, Szymankiewicz and others said.
Collecting payments from customers?
» Don't wait until an invoice or statement has been sent to plan how to collect payment. Start at the beginning of the business relationship.
» Make sure that credit payment terms are stated up front. Incorporate incentives and fines and include terms such as: “Payment due seven days from the date of the invoice”; “Two percent discount if paid within 10 days”; and “Late charges added after 30 days.”
» Don't allow a bill or invoice to go unpaid for 30 days without active follow-up. Asking for payment is a necessary skill for maintaining a solvent and healthy business.
Source: National Federation of Independent Business
One of the most important tools for businesses engaging in transactions worth $500 or more is a contract outlining the provided materials and services, Szymankiewicz said. The contract should also outline a payment schedule, which could be based on a series of benchmarks to reduce risks.
The business could require a down payment to cover materials and require additional payments at certain points of the project.
“My counsel about the contract is it makes that fight a lot easier if you have to go to court,” Szymankiewicz said.
Some small-business owners may have the opportunity to mitigate their risk by targeting customers with good credit standing or performing pre-qualification evaluations, but not everyone has that luxury.
Many people start a business and have to take the customers that walk in their door, Szymankiewicz said.
Cindy Schulz, owner of Schulz Iron Works in Raleigh and president of the American Subcontractors Association of the Carolinas, said staying on top of paperwork is key to getting a timely payment from a general contractor.
In many cases, Schulz Iron Works doesn't get payment until after a general contractor has sent the final bill to the primary client, which can be months after services are performed.
To prevent further delays, Schulz recommends sending the invoice as outlined in the agreement contract and following up to ensure the right person got it. Also, Schulz makes sure all forms were completed properly and checks to see if there are concerns about the bill.
If those actions don't result in a payment, then a phone call needs to be made to the client.
“Try to follow up on whatever you consider to be a regular reasonable basis to find out when you can expect your payment,” Schulz said. “And if you have not received your payment by the date, call back and find out what is going on.”
Schulz said she turns to legal action as a last resort.
“I prefer to try to work it out between ourselves and our customers whenever possible,” she said.
Szymankiewicz said if a payment isn't going to be received, the owner should find out whether the client has a problem with the service or if they don't have the money. If it is the former, mediation could resolve the problem, he said. Payment plans could solve the latter.
“The last thing you want to do is go to court,” he said. “Court is going to take time and upfront investment.”
If a business has the resources to pay but is taking advantage of the small business, a letter from an attorney is the best way to get their attention, Szymankiewicz said.
“I talk to a lot of clients who think going to court is a sure thing,” Szymankiewicz said. “It is not.”
Once you have a judgment, then you try to collect, which could cost more money if the client won't or can't pay for any reason.