The Art of Business: Avoiding the Heartbreak of Collections
If you’re lucky, you’re working with a devoted passel of clients that pay you within 30 days of your every invoice if for no other reason than to keep you carefree, committed, and artistically focused on your creative talents. More than likely, however, many of your clients are not so devoted. In fact, some may be down right hostile to the notion of paying you on time or (perish the thought) paying you at all. That means you have to exert time and energy collecting money that’s rightfully yours.
Collecting is no fun, but it’s your money and no one else is going to track it down for you. And putting off this unpleasant task will only make things worse: After three months, the probability of collecting a delinquent account drops to 73 percent, according to a survey conducted by the Commercial Collection Agency Association. After six months, your chance of seeing the money is 57 percent. After one year, it’s a dismal 29 percent.
Here are tips to help you avoid collections altogether, along with some advice on how to make the odds fall in your favor when the check’s definitely not in the mail — when invoicing turns into collection.
- Rule 1: Get It in Writing
Creatives often find themselves in the position of having to hound clients for money because they haven’t adequately addressed the issue of payment. So in addition to an estimate, purchase order, or proposal that states the compensation, make sure to draw up a letter of authorization to be signed by the client that specifically states the amount and terms of payment. This is your ace in the hole if payment becomes a problem. It sounds elementary, but it’s worthy of repeating: Let your clients know your payment terms clearly from day one. - Rule 2: Know Your Client
It’s a soft market and that means there are plenty of companies — no matter how fancy their offices or plush their furniture — that are experiencing cash flow problems. For most, paying a tiny creative studio for services rendered will hardly be a high priority. So before you sign on to do a big project, check the appropriate online trade magazines for financial info on your client, or make casual calls to other contractors working for the client to get a feel for the company’s financial health and payment history. If you know the client has a spotty history, keep an eye on the account, and follow-up even a week after a payment is delinquent. - Rule 3: Review Your Collection Policies and Procedures
It sounds like a drag, but it will probably take less than five minutes to think about the payment habits you’ve created for yourself. Do you regularly extend payments to customers? An instance here or there might not hurt you, but if you’re always the good guy when it comes to payments, your cash flow is going to take a hit, and your creditors might not be as benevolent as you are.Do you accept big balloon payments at the end of projects instead of asking for incremental pay at significant milestones along the way? It may be OK occasionally to wait until the end, but the milestone method gives you some leverage if the payments don’t come; you can halt work until the situation is rectified. - Rule 4: Keep Lines of Communications Open
If you’re experiencing a problem or foresee one in the making, talk to the right person quickly. An open dialogue is the best dialogue. Some clients, as you may have already experienced, will attempt to cover up their inability to pay by inventing a dispute over the quality or timing of your work. That’s why it’s so important to make sure the client is happy every step of the way. Do so with a written sign off for each step successfully completed. And keeping the lines of communication open keeps you in touch with your clients’ level of satisfaction, as well as making it harder for clients to claim false discontent. - Rule 5: Follow Protocol
You’re in a tricky situation; you want to get paid but you want to be seen as neither a pest nor a pushover. Thankfully, there’s a collection protocol that is of great value.If you don’t receive payment after “net thirty,” follow up with a polite “reminder” telephone call. If payment is not made after 45 days, send out a second invoice and call again to politely ask the reason for the delay. Don’t hang up until you have what seems an honest and acceptable answer. If you haven’t been paid after sixty days, send an invoice marked third and final, and call once again, this time (gently, gently, always gently) demand to be paid immediately. Talk to the accounts payable manager, your point person on the project, and his or her boss. Spread the word, following the old axiom: The squeaky wheel gets the grea$e. - Rule 6: Cut a Deal
Better yet, don’t cut a deal. Why should you? You’re a professional, a client has accepted your terms, it should pay full price. However, if you see no possible way of getting paid the full amount, suggest a price cut in exchange for immediate payment. Needless to say, use this method only sparingly, and once you do so make every modification necessary to avoid placing yourself in this position again.Other Avenues
If you’ve called three times and sent out three invoices and you’re still not getting paid, it’s time to bring out the big guns. Unfortunately, there are no big guns; just a few pesky gnat-like strikes.If the owed amount is relatively small — say, $2,500 or less — small claims court is probably your best bet. There’s usually a small filing fee and the process in fairly informal (some states don’t even allow lawyers). Judgment is often swift. Unfortunately, most small claims courts have no teeth, so they can’t compel anyone to pay. Nevertheless, you have a judgment against your client and no one likes that.
If you’re chasing down a bill in the $2,500 to $10,000 range, you might want to try a collection agency. Get ready to cough up a major cut to the agency, which will take between 25 percent and 50 percent of the total that comes to you. And there’s no guarantee they’ll haul in 100 percent of what’s owed. But don’t wait too long: The diminishing odds of collecting delinquent payments over time apply to collection agencies as well as individuals.
The other alternative — and certainly the best alternative if you’re owed $10,000 or more — is to contact a good attorney. He or she will have a small arsenal of strategies, ranging from a simple request letter to a formal complaint asking for a court to freeze your client’s bank account in the amount equal to your bill.
The best alternative, naturally, is to do everything professionally possible to ensure that you’re paid promptly and often, because nobody ever really wins the dreaded, excruciating collections game.
This article was last modified on December 14, 2022
This article was first published on August 27, 2001
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