Ask questions. Negotiate. And be ready to cut your losses.
By Michelle Long and Sandi Leyva
How many times have you been unable to collect from a client?
MORE SMALL FIRM GROWTH STRATEGIES: The Dreaded ‘Quick Question’ | How to Manage Client Expectations | How to Handle Price Sensitivity | How to Handle Referrals – And How Not To | Trashing the Spreadsheet: Best Practices in Modern Expense Management | How to Find Hidden Money for Your Clients | Why Clients Need Dashboards | 3 Ways to Implement Value Pricing | How Small Firms Can Use Value Pricing | 3 Ways to Raise Your Prices | Building Reputation to Build Your Business | 3 Killer Lead Generation Channels | Your Existing Clients Are Your Best Leads | Need More Business? Focus on Referrals
When we asked this question in a poll, 26 percent of you had never gotten stiffed from a client... yet.
That’s good. But a lot of us have gotten stiffed or burned when we’ve not collected money from a client. It's happened to us.
If you’re one of the smart ones it’s only happened once and never again.
What do we do when there is a billing dispute? First, yes, get paid up front and that’s a good policy.
Let’s talk about some situations where there is a billing dispute. First, if you have a big job and they want you to do some cleanup or catchup work and you estimate it will be a minimum of $2,000, you want them to pay you $1,000 up front before you do the work. If they’re not willing to pay you $1,000 now what makes you think they’ll pay you $2,000 later? Right, so they should be willing to pay some money up front.
What if there’s a dispute? So you’ve done the work and sent the client the invoice. We should now be collecting up front but let's say you invoiced them and they didn’t pay.
What I would do in that situation is follow up with the client and say, "I realize this is past due, did you have any questions about the bill? Why didn’t you pay it?" They may have a good answer: "I’m sorry, so and so was out sick and didn’t cut the check."
But you need to find out if there is a problem. Was it the services you provided? Did they think it took you too long or you charged too much? Was there another problem or reason they weren’t happy or dissatisfied? Are they not paying the bill for a reason and not we don’t have enough cash right now? Are they unhappy? Is there a problem? Why are they dissatisfied? What if there was miscommunication and did they not understand the billing policies up front?
Think about the things you need to communicate with the client. Maybe there has been a misunderstanding and they think you charged them $2,000 to only do this and didn’t realize that $2,000 also included the fact that you did this and that. They may not realize everything involved.
A lot of times when there is a dispute, it’s a situation where there’s been some miscommunication. You need to talk to the client to try and figure out
- what went wrong,
- what the problem is and
- what you need to do.
Do you need to set up a payment plan? Do you need to say you’re right and we promised you’d have it by XYZ date and we’ll take however much money off because we were late getting it to you?
What do you have to do to work it out with the client? You always want to try and work it out for the client and make both sides happy. You don’t want to feel like you got burned; the client doesn’t want to feel like they got burned either. What is a win-win for you both to be happy if you want to maintain that relationship?
Do you want to continue working with the client? Do you want to make this right? Or you know there are a few bad apples out there and they’re trying to get something for nothing. You did all the work and everything right and they just don’t want to pay you. Unfortunately that happens and hopefully not often, 1 in 100, but occasionally it does happen.
The best thing to do is try to negotiate an amicable agreement to resolve it. You don’t want to pay me $2,000 and I did all this work, you are a PITA and I don’t want to work with you anymore. What do we need to do to resolve this? You’re not going to pay me 2 grand but would you pay me $1,500 or $1,000? Try to get whatever you can voluntarily.
People will ask should I sue them when they don’t pay me. Most insurance providers – and you need to check with your E&O provider – say don’t sue because you open yourself up to the fact that you didn’t do this or that or failed to provide adequate services, etc. and they can possibly countersue you. So you need to talk to your insurance agent.
The amount will make a difference, too. If we’re talking $2,000 that’s one thing but someone sent me a message about $200 grand and I hope that was a typo. Is it $2,000 or $20,000 or $200,000? First, you never ever want to keep running that bill up and yes I did this myself.
Way back when, when I was first starting out, I had a client who wasn’t paying me and I could see the books and see the other vendors who weren’t getting paid. Why the heck did I keep doing the work? Why didn’t I say no?
"You know what, Mitch, I’m sorry, you’re not paying me so I can’t keep doing the work for you. I’m not working anymore, stop, finito and done." But no, I ended up losing $3,000 or $5,000 and I saw the sinking ship and didn’t get off. Why? I don’t know. I’ll never do it again though, I’ll tell you that.
We need to learn to stop doing the work if we’re not getting paid. Don’t do it. It’s as simple as that. They can understand that…if a client says why aren’t you doing this? "I’m sorry but you haven’t paid me and I don’t work for free. I have bills and a family and I need to get paid. I’m not doing the work if you’re not paying me. I’m going to work on other clients who are paying me."
Here are some comments from conference attendees. Vicky says "because it’s hard and I feel bad." I know, Vicky, but if you take your car in and need a new tire or you need this or that, they’re not going to fix it for free because they feel bad. We need to quit feeling bad. And yes, Beverly said the same thing, "We feel sorry for the clients." They take advantage of that. She says we see their financial situation and we get stuck.
You’re right, Beverly, sometimes they take advantage of that. Sometimes we need to see that and say, "I’m so sorry and I wish you the best of luck and I’ll do everything I can to make it easier for you. Here is the file and here is what you need to do and you do it on your own." You can try to help but you don’t want to go down with the ship.
It’s really hard I know because we do develop relationships with our clients. But as Rebecca said, "Remember the client has to take responsibility for their actions." Lynn said, "I felt bad twice but no more." Someone else said, "I feel bad when I start and then I realize that I’m not in business with my clients and my creditors aren’t cutting me a break."
You’ve got to realize that we can’t go down with the ship. Try to do what you can and then from there you’ll have to cut your losses.
Yes, we get caught up in the emotional part. We get in there and we feel sorry for them and want to help them, but we have to learn to say, "Here is everything you need and what you need to do. I’m sorry, I can’t keep working for free."
Hopefully they will learn their lesson from a former social worker, don’t work harder than your client is working at managing their cash flow. That’s a good one. We can’t care more than they do.