On Getting Paid

By David C Garrett, Rocky Mountain Chapter

I've just come from my lawyer's office. In my hand is my standard consulting agreement. I use this agreement when I start a new technical communications project with a new client. It has red ink all over it.

During the last eighteen months, many of my clients have become my enemies. Blame it on the economy, blame it on global warming, blame it on Osama. My clients have become deadbeats.

Getting paid has become like pulling teeth. Slow, painful, and sometimes in vain. Simply getting what is my due has become a Herculean task.

Collections is not my thing. I find it demoralizing and depressing. I get angry, frustrated, resentful and, sometimes, just a little crazy waiting for the promised check that never arrives. If starting a new project is like getting a playful new puppy, then collecting overdue payments is like putting the old dog to sleep. It's something painful that must be done.

Many people, particularly those in large organizations, have so distanced themselves from the realities of the small business or the independent contractor that they have no idea of the painful consequences of paying late. The middle managers and project directors, safe within their cushiony world of annual pay raises, full health coverage, and year-end bonuses, have no clue about the real world where cash flow will literally make or break an independent consultant.

These aren't evil people, they're just ignorant. They protect their own interests in their Byzantine political worlds, so it is reasonable that you and I protect our own interests as well.

What follows are some thoughts on ensuring you get paid if you are in independent contractor or you run a small business. Much of this has to do with contractual arrangements. I'm not a lawyer and I offer no boilerplate for your use. You need to discuss your contracts with a competent lawyer (preferably one, like mine, who specializes in collections work).

Idea 1: Get paid in advance
This is the simplest solution. It avoids heartache and animosity. It's good for your workflow and eases the client's administrative burden. If your client can't afford to pay 100% in advance, you might well wonder why not. If you're billing by the hour, create an estimate and ask for a retainer for the full amount of the estimate. At the end of the project, you can bill the client for the difference or refund some of their money. I sometimes create an incentive by offering a discount for payments in advance. The more money you can get up front, the easier life will be downstream.

Idea 2: Ask for a credit card
If the project isn't a large one, have them charge the full amount. This may sound a little wacky, but the important thing is to ensure you get paid. Many corporate cards, including American Express, have spending limits, so this may not always be an option. You might also just get the credit card information as a way of securing payment. If worse comes to worse, you can just charge the unpaid amount to the credit card. If you insist on securing the debt with a credit card and if the only credit card available is someone's personal credit card, my bet is you will never be paid late.

Idea 3: Specify short payment terms
In the past, I usually billed in two-week increments and I gave my clients 30 days to pay. In a sense, this is like extending a loan to someone for 45 days. Your bank wouldn't do that. Now imagine (or remember) the last time your client took 60 days to pay. Or 90 days. I have one client (a major computer manufacturer with a thing for cows) who has outstanding invoices from July, 2001! Get tough on the terms. 15 days should be plenty of time for even a large bureaucratic company to cut you a check.

Idea 4. Charge interest
Specify that late payments will be subject to a late payment charge. Make the penalty large enough to compensate you for the aggravation. Specify a minimum of 1.5% on the unpaid amount and apply the penalty every 30 days that the amount remains unpaid (including the unpaid penalties). If I had applied this approach to the major computer manufacturer mentioned above, they would owe me well over $3000 in late payment penalties, which would go a long way toward easing my aggravation.

Idea 5. Have them fill out a credit application
If a company can't or won't pay you in advance, they're essentially asking you for credit. So make them fill out a credit application. Just the act of doing this may shake some prepayment dollars loose, but more importantly, if you do need to pursue collections later or even sue, you have the information at hand to facilitate that. The application should request the legal name of the company, the state where the company is incorporated, the date of incorporation, the Federal Identification Number, and the names and addresses of all the officers. You should also get the Chief Financial Officer's name and phone number and the name and phone number of a contact in Accounts Payable. Many times I have been stymied in my collections effort because the manager I originally worked with has left the company. You should have an alternate contact. If you are dealing with a partnership, get the names, addresses, and phone numbers of all the partners. Each of them is liable if you don't get paid and have to sue.

Idea 6. Make sure they pay your lawyer's fees
In your contract and/or in the credit application, make sure that they agree to pay costs associated with collecting unpaid money and, very importantly, specify that they will pay your lawyer's fees. If you have to sue, you will find that not all lawyers will work on contingency. You may have to pay your lawyer up front and, if so, you definitely want your deadbeat client to be liable for reimbursing those fees once they lose the lawsuit.

Idea 7. Stop work if you don't get paid on time
Specify in your contract that you reserve the right to stop work on the project until any past due amount is paid. If the work involves a critical deadline, this may focus your client on ensuring you get paid on time. You can specify the amount of time that will go by before an a past due bill will result in stopping work. To me, 10 to 15 days is adequate. One thing you want to avoid is letting unpaid invoices linger for weeks or months before doing something definitive to collect. Get squeaky early and often.

Idea 8. Retain ownership of your work until you receive full payment
Reserve the right to withhold delivery of the final work until you get paid. If that's not possible, reserve ownership of the work until you get paid. This way, if they don't pay you and they use the work you produced, you have a copyright claim against them. Personally, I favor just holding on to the finished files until you get the final check. It's funny how everyone loses interest in paying you in a timely fashion once you deliver the final product.

Idea 9. Keep photocopies of the checks you do receive
This gives you banking information in case you have to attach a lien or use some other legal tactic in order to collect.

Idea 10. Make sure the person signing your contract has authority to do so
Somewhere under the signature line, put language that says the signer has the right to legally bind his/her company. If in doubt, you may want to request that the person's boss signs the agreement as well. Ideally, you'll get the company's lawyer to sign.

Oh well, maybe it is just an economic blip and, soon, professionals will begin to act like grownups again. But, in the meantime, apply some of your considerable writing skill to the clauses in your legal agreements that protect you from deadbeat clients.

David Garrett is president of Znxt Corporation, a technical communications firm that specializes in content management and single sourcing solutions. He currently serves as the immediate past president of the Rocky Mt. Chapter of the STC. He can be reached at dgarrett@znxt.com.