It’s all about the Benjamins, rapped Puff Daddy back in 1998. How do you protect your business and get paid once the work is done, the service is delivered, but the check still isn't safely cashed into your company's account? You should adopt a two-pronged strategy: implement precautionary measures when you first get new business, and diligently pursue those already outstanding invoices. Here are some key tips for both strategies that should help you get paid on time without hassle.
Before you accept a new customer:
- Vet your clients carefully, assuming you have the liberty and flexibility to do so. A credit check is the obvious place to start. This is your best chance for ensuring that if you do extend credit to a client, that they will indeed pay you for your work or merchandise.
- Require pre-payment or partial payment – again, if your business situation permits.
Once the invoice has been issued:
- Don’t wait long before trying to collect your money. The longer a business waits to collect outstanding money, the harder it may be to actually get anything from the debtor.
- Work out a payment plan. Even if it is a small amount, or, a lump sum at a reduced amount to what is due, it is progress. Unfair, yes, but better than getting nothing.
- Create an attorney-reviewed contract. Seek out an attorney who specializes in counseling small businesses. Tip: It’s a good idea to make sure the contract allows the business owner to collect attorney fees if the customer does not pay his debt.
- Use firm verbiage with your on-paper contracts. You don’t have to be aggressive right away, though. You can have your lawyer draft a template demand letter for the client who fails to pay. Sometimes the letter is enough to produce results. “The letter should say something along the lines of: ‘You have x amount of days to respond, and if you do not, we will turn this case over to our legal department which will pursue all legal options available to the fullest extent of the law,” says Philip S. Raskin, Esq., Associate Attorney at Grant, Riffkin & Strauss, P.C. “We [also] always end the letter with the following: ‘Guide yourself accordingly.’”
- Know your state legislation if a lawsuit becomes necessary. Familiarize yourself with the Fair Debt Collection Practices Act. It is a compilation of federal rules the debtor may be subject to, and they definitely don’t want to violate them.
Ideally you want to be paid without having to file a lawsuit, as the process is time-consuming and the outcome is unpredictable. "Collecting on the judgment is a 'second phase' to the collections process," says Raskin. "It is important to try and resolve your issue without having to turn to the court system.”