How to ensure that you get paid on time by your clients.

Many small business professionals go out of business each year due to clients not paying for their projects on time. Its an epidemic that affects most businesses, but detrimental to the professional working alone.  It is a major cause of stress and can lead to a range of personal health issues that we can all do without.  So how do you get your money on time, in your bank when it due for payment? The following won’t guarantee that you get paid, but it will give you a greater chance of getting paid on time by your client.

When a business fails due to payment problems, it puts a lot of pressure on the professional and some can handle that pressure and some take drastic action after a business failure. It is my hope that this article will help you to stay on track and get paid from your clients on time, every-time. And, remember, your health is much more important to you and your family than the payments lost.

How do you do the following?

• Your client contract (what does it say about payment)?
• Do you have a clear starting & completion date?
• When will ownership pass to the client?
• What are your terms and conditions about payments when they fall due?
• Do you take a deposit up front?
• How are the payments handled for the remaining work being processed?
• Do you have a penalty clause?

The Contract between You and You’re Client:

Your contract needs to be in place and outline how payments are to be made to you on completion of your work, including staged payments, penalties for late payments, and what happens when payment fails and you need to take legal action.  These are all part of a basic contract, and you should never start work on a client project until this has been signed and the deposit stage payment has been paid.

Failure to have a contract in place is like driving your car without wearing your seatbelt, you know that sooner or later it will benefit you. Never start any project without your contract signed.  Now, it makes no difference if you are completing work for a company, government agency, or completing work for a friend.  Basically, if you have no contract signed you have no legal rights (now some of you are screaming that a verbal contract is just as good, “IT’S NOT“, so don’t use a verbal contract ever).

Start & Completion Date:

It is so important to stipulate your starting date and completion date for the client project.  If you have no completion date then the client can draw this out as long as they like.  So, as a professional, you need to understand your business and know what time will be required to complete the project.  This is a two-way street and many clients will impose penalties on you should you be late in delivering the project (either in stages or the entire project.  To this end, you need to be clear in your contract that all work completion is driven by the client’s responsibility to deliver the agreed resources on time, some clients will delay delivering the workable content just to avoid paying on time or paying at all.

You as the professional have to impose penalties on the client when your project is delayed due to the client not delivering the worktables to enable you to complete the project on time.  This may be in the form of a daily/hourly rate for the extra time spent on the project above the agreed contract completion date.

When will Ownership Pass to the Client?:

No ownership should pass to your client until the project has been paid for in full and signed off by you.  Why?  This may be the only weapon in your possession to ensure that your client pays their bill for the work you have completed. Also, never give the client access to the work on their platform, have your own platform where you can create and demo the work completed so far.

Payment Terms & Conditions in the Contract:

State clearly what your terms and conditions are regarding payment (can be as simple as) :

• Initial payment of 50% of the total price which is €xxx will be payable on 25/12/20xx (Work will only commence once payment has cleared, where payment is by cheque or bank order)
• Followed by, two 25% payments where the first is due on 31/01/20xx and the second due on 28/02/20xx.
• A penalty on late or missed payments will be applied at the rate of x% per day.
• Where the project overruns or is delayed due to the client, there will be an extra daily/hourly charge of €xxx
• Ownership of the project will only pass to the client when payment has been made in full

Imposing Penalties:

Imposing penalties are necessary to ensure that your client is motivated to complete the project within the allocated project time stated in the scope of works.  If there are no penalties, the client has nothing to lose and could drag out the payments due to you.

Getting a Deposits:

Always get a deposit, even if you are doing the project for your own friend.  Never start a project until you have the deposit in your bank account, and if payment is by cheque or bank-order, wait until the payment clears your bank before starting the work for your client.  A deposit says “I really want you to do this work”.  I do a lot of work for local government agencies, and large and small companies, and always get a 50% deposit before starting the project.  Never be afraid to ask for the deposit and if it is not forthcoming, then ditch the work as this is a signal that there will be issues with payment down the line.

Bad Clients & Late Payers:

Life is life, and there will always be a problem with bad clients and late payers.  For me, when working with this type of client, I require full payment up front, cleared in my bank account before I will click a mouse button.  Don’t be fooled by the client with promises to do better this time around and ensure you get paid on time, they had their opportunity to make a first impression and they blew it big time!

Taking Legal Action:

Taking legal always a last resort and one that we all want to avoid if possible, but, sometimes, we have to step up to the plate and take action to ensure we get paid. Why? Well, for a number of reasons:

• If you don’t follow through, then other clients may treat you the same as they will see you as a soft target.
• Your business may depend on the payments to survive.
• Let clients know that you are a person of action.

Now, the good news is that it does not have to cost a fortune to take your client to court and get paid for your work.  My most popular way is through the “Small Claims Court”.  Now on this, I can only speak for Ireland.  (The amounts and fees may be different in you in your country or state, I do know that in England & Wales, you can claim up to £10,000, but the fee is on a sliding scale, depending on the amount you are claiming ).  In Ireland, you can take anyone to the small claims court, where the amount is €2,000 or less, and this will cost you just €25 in fees.

Many times when you issue a small claims court writ to your client, they back off and pay their bill.  If they still refuse then you only risk the application fee.  Something to remember is that you may have a case for €6,000, this does not mean that you can not take the client to court, you can go through the small claims court and claim the maximum €2,000, or you can take them to a higher court and seek the full amount owning, however, this will cost you a lot more in legal fees.  There are other options available to you, but not in the scope of this article and they are options that you would need legal advice before acting upon, (one such option is to apply to have someone declared bankrupt when they fail to pay their bills, but this would certainly require the assistance of a legal representative).

Conclusion

You are not guaranteed that you will get paid for the work you do or that clients will pay you on time, but, you can limit the possibility of being messed around by implementing some simple terms into your client contracts. Make sure that you get your deposit, preferably 50%, but it is up to you to set this percentage.  Remember that friends and family can be problem payers and you need to consider this when deciding to do or not to do the work.  And finally, money in your hand or in the bank is the only money that is secure, promises and payments are totally different, get the payment, not the promise.