I started my landscaping business last summer and for the most part did really well. The problem is I haven’t been paid for the biggest job. I’m out of pocket for all the labor and plants. The customer won’t return my phone calls. I can’t afford an attorney and can’t afford to just walk away. What should I do?
Unfortunately, your experiences are not uncommon among new business owners and freelance entrepreneurs. Each month, thousands of people leave corporate America for a more independent and satisfying work day. But often when our work is highly creative and enjoyable it’s easy to jump in and do the work, not adequately prepare for administering the work.
much higher cost than the amount you are trying to collect today!
Because getting paid is fundamental to business survival, you have to be completely dedicated to collections. This doesn’t have to be time consuming or expensive.
So what do you do next? Before signing up another customer, visit your county’s small claims court website. Familiarize yourself with the rules for filing a claim. No lawyer is needed and in most cases the filing costs are below $50. You’ll find there is nothing hard about winning a judgment as long as your case is well-documented.
I know the word “court” can be scary, but small claims court can be used as a powerful, low-cost collections tool. Actually, I bet your deadbeat clients will be more scared by being called to court! And that’s exactly what you want.
For now, forget collection companies that are expensive (up to one-third of recovered funds) and largely ineffective for young companies with intermittent collection needs. Small claims court will be the fastest, cheapest way for you to collect overdue bills.
To win in any court, you need supporting documents to show client acceptance of the proposed work, acceptance of pricing terms and work completion.
Next, develop your company’s own “collections policy.” By creating a formal policy, you will be less likely to procrastinate on deadbeats in the future. For example, “If a bill is 15 days past-due, I will immediately place a call to the client. At 30 days I will send a letter with a second statement copy. At 45 days I will visit the client and ask for payment. I will not hesitate to take action!”
You’ll likely get paid when you visit the client because it’s easy to ignore collection letters; much harder to ignore a friendly face. Your meeting objective is to discuss any work quality concerns and the client’s attitude about payment. Ask outright: “Do you intend to pay this bill?” If the answer is negative, be courteous and calmly state that you will take the case to an independent judge.
Here are some other ways to reduce non-payment risks:
- Get a non-refundable down payment before beginning all work. If your county’s small claims limit is $4,000 and a job is priced at $6,000, get a minimum $2,000 down payment. If clients can't fund a down payment, they can't fund large work assignments.
- Create a highly detailed work proposal for client signature. If necessary, develop a work plan for each project phase and be careful to amend documents for new client requests. Consider this document as "Exhibit A" in future court battles against deadbeats.
- Invoice frequently. Some smart service companies invoice every two weeks with a "due upon receipt" notice printed on the invoice. Stop all work when payments become overdue. If you don’t say when a bill is due, it’s hard to tell a judge when a bill is due.
- At the start of each new relationship, talk to the client about how your business is organized around steady, prompt payment. Look for signs of client uneasiness.
- Take before and after photos.
- Add a clause to your work contract that requires deadbeat customers to pick up all legal and administrative costs associated with bill collection.
The key to collections is taking fast action. If you don’t already have photos of the work done, get them in hand quickly. Then prepare copies of all invoices, work proposals and other evidence of client acceptance, such as emails from your client. Then visit your local claims court and file!
Entrepreneurs tell me that it is a really satisfying feeling when they get a payment judgment and get paid for work well done. Go to it!