Business is business, and your clients know (just the same as you do) that if payments are not made properly, then the business relationship they have with you will ultimately die. Here are 5 key steps to help you ensure that things are kept under control.
1. Terms and Conditions. You need to manage expectations, and a properly drafted set of terms and conditions (T&C) sets the scene immediately. Don’t start work without one. It allows both you and your client to understand the roles and requirements of each party. It should set out:
• the scope of the work
• what is required in order for the work to be performed
• the time frame
• the fee structure and payment terms; and
• proposed remedies to help resolve conflicts
There is no need to get legal advice (unless you really want to) and normally, a straight forward document written in plain English is perfectly adequate. The objective is to avoid the need for the involvement of legal experts later, but it’s worth bearing in mind that if your terms and conditions document does ever end up in court, then it has to be clear enough to help the judge make an informed decision.
2. A credit control process. We all go through minor cash flow problems from time to time and one missed payment should not mean having to recall Parliament. A simple message to the client to let them know that you have “noticed the difficulty” should be sufficient. Ask when payment is going to be made, and keep notes about the discussion and the temporary variation to the normal T&C. Also let the client know that one-off occurrences like this do not usually lead to a suspension of work. In effect, it’s business as usual and you are waving a green flag.
Quite often, this “green flag” step is a one-way process, and client’s who are on the verge of “catching up” with payments will often prefer to make a payment within a few days of your message, rather than enter into a dialogue about “credit control”. People don’t like talking about money. If you can overcome your reluctance to talk about it, then you will do well in business.
Don’t be tempted to skip this step, because if things do happen to get worse, then it will be harder to move onto the amber flag if you missed out the green stage. You need to have proof that you followed your process. The key to receiving payment is to have a mixture of consistency and persistency.
If you do end up in court, then the judge will want to see that you have taken reasonable steps. That probably makes the green flag step the most important step of all.
3. The amber flag. Assuming that there is definitely something wrong with your client’s cash flow, the amber step is often the last chance to keep control of the business. By all means send a letter or email first, but you must then be prepared to get on the phone and talk directly to the person who controls the purse strings. Talk business with them and make sure that they are satisfied with the service you provide. Check that they are intending to retain your services, and if that’s the case, then point out that “business is business” and that you are entitled to be paid.
On the basis of that conversation, you may agree to allow some flexibility in payment terms. Whatever you agree, write it down! Send it to the client, and ask them to agree that this is an accurate record of the conversation;
“Please let me know if this does not correctly reflect what we said.”
If you have a handful of clients, then managing a variation or two is not difficult. If you have hundreds of clients, then you may need to establish a “variation” process. You won’t want to do things fifty different ways for fifty different people. Decide what’s sensible for you and offer one, two or three alternative payment plans, and no more than that.
Experience tells us that these temporary variations need monitoring on a weekly basis. Doing it monthly is too long a gap, and doing it daily is impractical. Make weekly phone calls if you have to, because they are the most effective way to get payments in. If you don’t have the stamina to do that yourself then pay somebody else to make the calls.
You may find that some clients learn your system (especially if, like us, you have published it on your web site) and they will play the game and repeatedly push you to the amber step. If it’s habitual, then skip this step, and go straight from green to red.
4. The red flag. Stop work. Tell them why. And tell them what happens next, whether that’s some way of redeeming the situation, or whether that’s the complete termination of the contract.
The chances are that you will want to give them a further 14 days or 28 days to put things right. Whatever your plan, do no work during this “red flag” period, no matter how convincingly the client protests. If the client asserts that there is some particularly acute issue at stake, then it works in your favour. Still – do no work. A client would rather pay you than suffer grave consequences.
If you give in at this stage and continuing working without being paid, then word will spread and you will get a reputation as the organisation that is willing to work for free. Is that what you want? More problem clients?
5. Legal action. After the red flag step, you could try legal action, or you could put it down to experience.
If the debt is less than £100 then there is no point in commencing proceedings in the County Court. Write it off. Other “small claims” can be handled by way of County Court Judgments and the fees are relatively modest.
If the debt is more than £750 and the client is a Limited Company (and you are expecting to do no further business with that client) then you could go for the jugular and consider issuing a Statutory Demand – contact a legal stationer.
The beauty of a Statutory Demand is that it’s like “going in with the big guns first”. However, to be valid, you must complete the document correctly, and follow the guidelines precisely. If you get any of that wrong, then any later court action may fail on a technicality.
If neither of those two options looks right, then in all other cases you will need some middle ground and that means you will need to take professional legal advice.
This 5 step process has been developed by Proactive over a number of years. They commenced in business in 1997 and clearly have been getting something right! This document is copyright protected © 2011 Proactive. It may be reproduced in its entirety without modification, provided that this footnote is included referring the reader to http://www.proactive.ly