Collecting on overdue invoices

[cbscreative]

I get what you're saying, Frederick, and I'm making plenty of changes to my business for that exact purpose...to grow. But I admit that my goal is not to become a "big" company. At least not under my current business model anyway. Anything I'm doing 10 or 20 years from now could be quite different.

The trends in our business are not good for small business owners, so I have no interest in their models as a matter of conscience. One successful model is to promise the earth, moon, and sky for anywhere from $5 to $150 or so per month. Some of the models that exceed $100 actually work for some businesses, but there are still holes in each one I'm familiar with. Just like you coach each business person individually, a good service provider in the fields we are discussing here must do that too. Any kind of canned solution always has drawbacks.

The canned solutions are easier, they are more profitable, and they are quite frankly more successful for the provider. They can be duplicated over and over with little further thought after they are produced in mass. It is easy for someone to grow big using that model.

I mentioned conscience, so I'll use a well known cheap logo service as an example (no need to name them). They sell logos for about $300 last I knew. Their model requires they find a lot of starving artists willing to work for nothing with no guarantees of anything. Even if they win the prize, I wonder what amount of the $300 they get. They offer unlimited edits until the client is happy. Knowing what I know, that is a very raw deal for the artist. Certainly an insult to the artist which I call exploitation. OK, the artist doesn't have to go for this deal, that's true. But when they get enough miserable souls to agree to work that way, they can process thousands of these jobs every day and collect their override. That's certainly a great business model for making money, but I call that exploiting people, and most of them are no doubt located in developing countries, desperate for anything they can get. It's just a different kind of slave labor in my book.

And I make no apologies whatsoever for calling this exploitation.

As for the value the clients are getting, it's virtually non-existent. I know most are totally happy, but only because they got what appeared to be a great deal. Their satisfaction stems from the fact that they don't understand the purpose, role, and importance of a logo. Most of them probably never will. So while this big logo company could be congratulated for meeting a market demand and making an insane amount of money doing it, I wouldn't want that on my conscience. Call that taking the moral high road if you wish, I can live with that.

There is a big need in the market for small business owners to be provided with customer focused design. Like Dan's example where he has no problem finding these people, I can say the same thing (and I'm sure vangogh will agree too). But we have to weed out the people with the $300 logo mentality. They are not our clients, and most of them never will be. When you figure that 80% (80 percent) of companies fail within 5 years, you will realize that our clients need to have the kind of thinking that puts them in the 20% (20 percent). Our requirement in most cases for money up front is a very effective indicator. It's hard to explain to people outside of our trade, but just take note of how we all agree on this one. It's not because we want to stay small, but I admit it's harder for our model to grow truly big and be manageable.

Frederick, there's no need to apologize. I'm not offended, I doubt anyone else is, and your input is certainly welcome.

[ACE Janitorial]

I think this is a very important topic you started. Due to our economy, all of us are facing this same situation. What really makes it bad is when you have employees or subcontractors like me who know how to track you down. Businesses seem to make it impersonal so they don't have a guilt trip. I have a contract which clearly lays out payment terms but customers don't seem to care. They feel the chances of me taking action against them is very slim so they take advantage of it. Also, we have so much competition; if we don't bend over backwards then our replacement will. My advise is to get a contract drawn up by an attorney in case you do need to take legal actions. Do you own research to find out where you can file claims. In my case a Justice of the Peace handles these cases and it's not that hard to file a claim. Thanks again for starting a good thread.

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[huggytree]

im 3 months away from 4 years in business now and have never lost 1 cent due to non payers.

they have 30 days to pay, after that they get a phone call or letter...depends on the situation and dollar amount...basically saying payment is late please pay now

i call or write once a week, sometimes every other week....30 days over due i go all out...i assume there's a major problem and i explain exactly what is going to happen...i do a prelien or intent to lien and i add an interest charge.

ive only had 2 go past 45 days...one took 4 months and one was 60 days..

since you cant do a lien on their house the only thing you can threaten is small claims court...id find a lawyer and have him write your threat letters..i recommend a time line explaining whats going to happen and when...also add a late charge...1.5 percent per month is mine..

anything over 30 days late is a Major problem.....i treat it harshly..i typically pay my bills the same week, i expect people to pay within 30 days as per contract... i dont want late payers as customers.....and i dont want their late paying friends either as referrals....my belief is cheap customers refer cheap friends and slow payers refer slow payers.......ive been criticized on this forum for my harsh tactics, but they work and i am up 22 percent this year...all good paying customers

this late payer is stealing from you and your family...it needs to be treated as a theft....i have 1 customer who is always a late payer...it has taken a year to accept it.....they always pay 30-60 days from completion date....it bugs me, but after 1 year i now deal with it...they bring me $40k a year+

[Dan Furman]

I don't mind whether you all insist on payment up-front or not. I have no skin in that game. I am a business coach: encouraging businesses to grow and expand is what I do. I assume that every business person I talk with wants to expand their business and want to grow into a big(ger) business. Many people here do not want to grow - that's fine - neither do I because I am retired. But I am a business coach and growth and expansion is what I encourage. If you don't want to grow into a big business, please excuse me, ignore me - there's probably some button on this forum that will hide my posts from you.

Until I am asked to stop, I will keep reminding everyone of things small businesses do that keep them small, and suggest things that lead to growth and expansion. I do that because I believe it is impossible to become a big company by continually doing what small companies do. To become a big company, you have to do what big companies do. In the words of the old adage: If you keep on doing what you've always done, you will keep on getting what you have always gotten.

I beg your forgiveness!

(Collective 'you' throughout.)

This sounds suspiciously like "if you don't listen to me, you will not grow". Tell me that's not what you are saying.

[Steve B]

What was the actual out-of-pocket cost to you to do this work for which you billed $3,500? If you spent $100 on materials and 30 hours of your time, non-payment will result in your losing $100 only, not $3,500 as some would have you think. To what lengths will you go to make back the $100?

I have to say the above is quite interesting logic. In my opinion, it's wrong. Once the contract is completed, the client now owes you $3,500. The $3,500 now legally belongs in your bank account and will help you feed your family and pay your bills just as efficiently whether it cost you $100 in material and 30 hours of time or if your out of pocket expense was $3,499 and it took you one minute of time. It reminds me of an earlier thread where there was a lengthy discussion about clients not respecting a web developer's time. Without re-reading it, I thought the consensus was that the time should be respected. The above logic is counter to that position.

Regardless, I would pursue the debt to the full extent allowed by law even if it was truly only worth $100. I always have some down time in the winter, I always recover the court costs, and I actually like utilizing our legal system - it makes me feel proud to be an American where we can operate in a true free enterprise knowing that there is a fairly effective system in place to ensure fair play. I've never lost a case in small claims court and I rarely have to go because my company has a reputation of one that requires payment from everyone.

Naturally, it's a personal decision and I certainly understand the concept of not fighting it if it isn't worth it to you. But, at least use sound logic when making that decision. In this case, not pursuing it is costing you $3,500 not $100.

[Spider]

This sounds suspiciously like "if you don't listen to me, you will not grow". Tell me that's not what you are saying.

I make a considerable effort when composing every post to say exactly what I mean, and I edit furiously to try to achieve that. There really is no need for anyone to wonder what it *sounds like* I'm saying. What I said was, To become a big company, you have to do what big companies do. I also said, I believe it is impossible to become a big company by continually doing what small companies do.

I will continue (until asked to stop) to point out when I see anyone here trying to be a big company doing what small companies do. And - it goes without saying - nothing I point out is any more than my opinion, based on my experience and independent study.

[Harold Mansfield]

I don't mind whether you all insist on payment up-front or not. I have no skin in that game. I am a business coach: encouraging businesses to grow and expand is what I do. I assume that every business person I talk with wants to expand their business and want to grow into a big(ger) business. Many people here do not want to grow - that's fine - neither do I because I am retired. But I am a business coach and growth and expansion is what I encourage. If you don't want to grow into a big business, please excuse me, ignore me - there's probably some button on this forum that will hide my posts from you.

Until I am asked to stop, I will keep reminding everyone of things small businesses do that keep them small, and suggest things that lead to growth and expansion. I do that because I believe it is impossible to become a big company by continually doing what small companies do. To become a big company, you have to do what big companies do. In the words of the old adage: If you keep on doing what you've always done, you will keep on getting what you have always gotten.

I beg your forgiveness!

(Collective 'you' throughout.)

Big companies get a deposit before they start work, so in that essence, we "small" businesses are doing the exact same thing as they are. No different. You also have to weight your desirable business model against the possibility of getting ripped off and it is very real when you deal with people from all over the world and you are a one man show.

This sounds suspiciously like "if you don't listen to me, you will not grow". Tell me that's not what you are saying.

That's what it sounded like to me as well, but I think he is trying to associate companies that actually have the money to take a risk against companies that are just starting out and can't afford to risk not getting paid. There is no comparison and I don't know anyone in their right mind, outside of a pizza delivery joint, that will create and deliver the product and hope to get paid. Big or Small. Even Government Defense Contractors don't do it and that is the biggest money suck pool in our economy.

I have had quite a few potential clients tell me that their business model is to pay when the job is done and I immediately do not trust them because I know what is coming next if I take that on.
I know that they have taken advantage of other service providers in the past in this manner...it's an old and unscrupulous business trick that larger businesses use to scam smaller business that they deem desperate for the work.. and by the time you are done putting out imaginary fires you are happy to take anything and be done with them and it always ends up with you making less and doing more work.

I have been screwed on this model too may times to see it any other way. It never comes out right and I can spot these people a mile away. From the very beginning they have no intent on paying you the agreed upon amount. It's a scam. They pick on people that they assume don't have the resources to take them to court, or that you won't drive across town and knock on their office door if you are 3k miles away.

It is actually a business model for a lot of companies, ESPECIALLY online. I see it a lot in web design, copy writing, domain sales, link sales, traffic, and graphic design.
It's the equivalent of limo customers that want a bunch of extra services "off the books" and tell you that they will "take care of you later"..that usually means that you are going to get screwed because they are going to pay what they want..not what it costs.

These types of businesses are why no one works without a deposit or money up front (if its a sale). It's why bars don't run tabs without credit cards, and why you can't drive without insurance.

You can't run every business the same and what works for an architectural firm doesn't work for a small design company until you have enough working capitol to assume such risk...it's also 2 completely different businesses. Small businesses and mom and pops don't contact architectural firms, so that risk they take is somewhat comforted by the fact that the companies that they are dealing with actually have some money..which you cannot have the same comfort when dealing with a new or small business.

I don't work without a deposit and I don't care who recommends differently..they obviously don't know the risks of my business to even do so.

[billbenson]

Big companies get a deposit before they start work

I really can't comment on web design, but big companies usually work on net 30 to net 120 terms for hard goods. I would think that is the same for services since it is the same purchasing department.

[Harold Mansfield]

What was the actual out-of-pocket cost to you to do this work for which you billed $3,500? If you spent $100 on materials and 30 hours of your time, non-payment will result in your losing $100 only, not $3,500 as some would have you think. To what lengths will you go to make back the $100?

This is completely unrealistic. Most of what we do is knowledge and time, not materials. If you have spent 30 hours to not get paid, that's 30 hours that you would have gotten paid working a more scrupulous client. It's a loss no matter how you try and justify that it isn't.

You being a consultant, I would think that you would understand this more than anyone. If you fly across country to coach someone and at the end of the week or month they decide not to pay you..I'm sure you would consider your time worth more than the amount of plane fare, food and lodging that you spent.

Not to mention that fact that you have already delivered the finished product. It's not about the $100, it's about the client having use of the finished product and not paying for it. If it was just a delivery of materials, then I could understand that logic.

[Spider]

Then you are worse off than I am with your firmly-held belief. You would have lost $3,500 and I would have lost only $100. I could move ahead faster, further, sooner, from where I stand than you could from where you stand. Plus, you would have more to fret over than I would, which would be more likely to hold you back than my piddling loss would hold me back.

No, I think I'll stick to my belief. It seems more productive in the bigger picture.