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Dan Furman
12-16-2008, 12:58 PM
A few months ago, I got stiffed on a $1,000 invoice - essentially, it was a 2k job, I got a 50% deposit, did the job, sent the work, and... nothing. Not a word. Not a "good job"... not a "bad job"... nothing. E-mails unanswered, phone messages unanswered. Either one of two things happened - the guy died, or he's avoiding paying. My work has not been put up on his site, so maybe he did die or something *shrug*

Now a recent job (completed in November), owing me about 1k, is "slow" on the final payment (I know for sure this one is alive, however, because he commented "great work" - and really, it's not that late yet - essentially not late enough to say something, but late enough to make me wonder if this will be an issue).

Again, about a 2k job, I got half down, and the balance seems to be an issue. I'm starting to get the feeling that this level of client (small entrepreneur, small 5-10 page website) is all gung ho when booking me, then after I did the work, sometimes market conditions gave them reservations about their business, whether they should change their site, etc etc.

I generally do not pursue these beyond e-mail / calling a few times because they aren't worth my time, and I know I'm not collecting anyway, regardless of getting a judgment, etc. All chasing does is get me angry, because it's a reminder that I got stiffed. These people either have the money or they don't. This is sometimes the risk of working with entrepreneurs. Truth be told, I'd rather just file them under a "name un-mentionable in polite discussion" file and be done with it.

Currently, I insist on full pre-payment for any job under 1k. I'm considering raising that to 2.5k. Because it seems that's where I have my issues - the "$2,500 and under" jobs.

No real point here - just throwing open a "are you having any payment problems" thread and getting this off my chest some.

Evan
12-16-2008, 03:08 PM
Are you charging interest on the outstanding invoices? Usually that creates an incentive to pay on time. If not, send out a reminder statement with something friendly that says "Did you forget about me?"

You could also offer a discount to those who pay early, generally a 50% Deposit, 1%/10 Net 30 type deal. Most don't take advantage of the discounts, but for those that do -- at least you get your money!

If it's an individual, worst case -- file a lien on their property at the maximum interest rate. Use the rule of 72 to determine how many years it'll take for those charges to multiply to collect.

I do have some clients that don't pay, though I'll just keep sending invoices and accruing interest at 24%. They usually pay within a few months. Fine by me, as I view it more like an "investment" at some point. Though there are some deadbeats. Perhaps requiring a credit card to be put on file as a guarantee is what you should do.

billbenson
12-16-2008, 03:48 PM
Dan, I would do something like inflate the initial price, but after the fact give them a discount when final payment is due. Just inflate the price enough to compensate you "OK". I've only been stiffed by private parties, not by corporations. Corporations tend to be late, but the eventually pay. Having said that I have a big RFQ out there for GM :) Wadda ya do with that.

I sell hard goods, not services, so its a bit different. To me warning signs are "gotta have it tomorrow", ask for payment terms up front, etc.

My strategy for what I do is to jack up the price and then discount either when they ask for it, or if I think they will be a repeat customer.

I don't think it applies to you, Dan, but I rarely discount for open bids. Somebody out there will lowball it. It's also surprising how little of that I get these days.

Evan, its industry dependent, but I don't think charging high interest rates is a good business strategy. I have a Lowes credit card with a $100 balance. I went to pay bills. Web site didn't work. They charged me $70 in late fees. They outsource the billing. Had a nice conversation with india. I did my best to ruin the day of the outsource billing persons day. I doubt I will ever step in Lowes again. They are a block from Home Depot anyway.

The point is, if you leave the customer with a sour taste in their mouth, you just lost a customer. If the customer is late or likely to skip, protect yourself upfront, but unless they will never be a repeat customer or never have an impact on your business but complaining about you for the interest penalties, I don't really agree that charging penalties is a good idea.

vangogh
12-16-2008, 03:56 PM
Dan do you require the final payment before or after delivering everything. You could require payment in full before delivering your files. Of course if the client needs to see the files before being able to call the job done that won't work. I can see where you'd need to delver the final content for approval.

You could also try a series of three payments instead of two. Come up with some deliverable in the middle after which a second payment is due. You may still not get the final payment, but at least that final payment will be less.

You could always up your full payment for anything under a certain amount and see if you're losing any projects because of it. If you don't lose any projects that's probably the best solution.

Dan Furman
12-16-2008, 06:00 PM
You could also try a series of three payments instead of two. Come up with some deliverable in the middle after which a second payment is due. You may still not get the final payment, but at least that final payment will be less.

I toyed with this once, but it became more of a bother. The way I work, I almost never send "draft" type work - I send the best work (and I nail it the first time about 85% of the time). But if I send my best work in the middle, it's kind of a draft, and a "draft" always gets revised, whether it needs it or not (that probably makes for an interesting psychological discussion.) Sending in the middle actually creates more work for me.

I don't want to make it sound like this is a big problem - it's really not. I almost never get stiffed, actually, but was reminded today of that $1,000 from July because his bookmark is still in my "clients" folder and I accidentially went there. I more needed to vent than anything :)

cbscreative
12-16-2008, 07:34 PM
Dan, this won't do any good on the situation where the work is not being published, but it could help on other jobs. I use a statement on all Work Orders that copyrights are assigned to the client upon full payment of final invoice. Until paid for, the client does not have a legal right to use the work. This may not guarantee payment, but it does prevent the use of intellectual property that has not been paid for.

Like you, I rarely get stiffed, but it is even more rare since I started using copyright laws to my advantage and stating it on the Work Orders.

billbenson
12-16-2008, 10:29 PM
Vangoghs post above gave me an idea. Actually a couple of ideas. One, publish the material on your website. That means it's your copyrighted material. You have the legal rights to that material until it is sold to them.

The other idea is to put it into an image file for review, again on the web. If it's large, its a pain to copy, and if it's on your site, you are the copyrighted owner.

Could do some "download copy and buy" on your site as well.

orion_joel
12-16-2008, 10:53 PM
Maybe an option, is to just refer the older $1,000 owing to a debt collection agency. You wont get all the money but you would get a portion and be able to write the client off your books.

Another option may be to deliver either pdf versions of the layout, or code, and if needed black out some crucial parts so it cannot be used unless full payment is made.

vangogh
12-17-2008, 01:01 AM
The other idea is to put it into an image file for review

Dan this is what I was thinking with the deliverable. You give your best work, but if it's in an image it's a pain to have to type it up Not hard of course, but a pain. I can understand why you wouldn't want to stretch things to a third payment. I generally don't do that either. Most of the time if someone is willing to pay me a deposit up front, they're going to pay the rest.

Maybe your answer is to raise the price where you collect everything up front.

orion_joel
12-17-2008, 01:11 AM
Maybe you could go with a slightly different split, or all upfront option.

You could give your clients on these small $1,000-$2,000 Pay all up front @ say $2,000 or two payments of $1,250 each. Or a third option may be to quote the higher $1,250 x 2 payments but actually when invoicing the 2 nd payment only invoice the $750 to make it $2,000. This may mean people are more inclined to pay because they think they are getting a great deal because you have invoiced it wrong. But at the end of the day you are still getting the same dollars or more even.

Dan Furman
12-17-2008, 01:28 PM
Excellent ideas everyone - thanks.

By the way, Steve (CBS Steve), I do use a copyright statement, and yea, I feel it does help. Great minds and all that :)

By the way, the slow guy paid me yesterday a few minutes after posting - isn't that always the way?? (maybe that's why I posted? Subconsciously, anyway - it's like going to the restroom at the restaurant - that's when the food comes.)

I am going to think on the image idea (GREAT idea!!) - I would MUCH rather do that than raise my "prepay" limit. Raising the prepay limit will scare people off, and it is not my way to punish 99 good people for 1 jerk.

vangogh
12-17-2008, 01:54 PM
By the way, the slow guy paid me yesterday a few minutes after posting - isn't that always the way??

On a similar note I often find that the moment I call technical support to complain about something not working is the exact moment it starts working again. I've also solved problems moments after posting a question about it.

Evan
12-18-2008, 11:47 AM
Evan, its industry dependent, but I don't think charging high interest rates is a good business strategy. I have a Lowes credit card with a $100 balance. I went to pay bills. Web site didn't work. They charged me $70 in late fees. They outsource the billing. Had a nice conversation with india. I did my best to ruin the day of the outsource billing persons day. I doubt I will ever step in Lowes again. They are a block from Home Depot anyway.

The point is, if you leave the customer with a sour taste in their mouth, you just lost a customer. If the customer is late or likely to skip, protect yourself upfront, but unless they will never be a repeat customer or never have an impact on your business but complaining about you for the interest penalties, I don't really agree that charging penalties is a good idea.

Knowing there is a penalty for paying late is usually an incentive to pay on time -- not always. With Lowes, the situation is different as this is a credit card and not so much a line of credit. The $70 fee was probably fixed and not a percentage based. On that $100 balance at 24% (lets say), that's going to be a $2 charge this month which certainly is better than the $70.

Credit card company fees never tend to be reasonable.

billbenson
12-18-2008, 12:27 PM
The credit card companies that look for people with bad credit are vultures. Kind of surprised me with Lowes though. They play the game of not posting the payment until after the due date to get the late fee. That or they charge you a fee for next day payment. I've been hit for late fees when I paid a week in advance.

In some research on a credit card that I canceled, they charged 7.95 for online payment. They also sent out paper bills so late that if you didn't use express mail, your payment would arrive late and you would get a late fee.

Interestingly, the last card mentioned above canceled all cardholders. I wonder if there wasn't some class action suit against them. There are really some slime bag credit card companies out there though. And it's not well publicized.

Evan
12-20-2008, 12:27 PM
Admittedly there are some bad credit card companies out there. I still have one -- the first I ever got -- which has a poor "online" system. You can't see prior months of statements, and its $12.95 to pay online or by phone. So I always mail a check in. Plus the grace period is horrible once you factor in the mail time to receive it and send it. So I'm forced to pay it pretty much the day I get it. It also has my highest interest rate (21.95%). To say the least, I almost never use it.

Discover Card has always been my preferred card. Lots of benefits, great online system, and a mere 7.24% interest rate. When you factor in a lot of the 5% bonuses and 1.9% APR on some purchases, plus a full month grace period (Billing ends on the 23rd, let's say, and is due the 22nd), it's really a great deal for me. Of course this isn't the same case for everyone.

So yes, there are vastly different credit cards. Store cards (Lowes, Home Depot, etc.) are notorious for bad terms. This is why I stick to the major cards and not the store cards. Why do I need 50 more cards. "Oh crap, I forgot my Target Visa... and my Kohl's Charge... and my WalMart store card." I'm too busy to deal with that stuff.

Vivid Color Zack
12-29-2008, 07:22 PM
I've noticed over the past few months that some of our vendors have started requiring 50% downpayment when for the past 3 years nobody has ever questioned COD.

Really, it's no problem for me, and it makes things easier in some cases depending on how the customer pays. It's just something I've noticed.

I actually had one vendor call me and suggest that I was trying to rip them off because I left in such a hurry... Simply signed the check and the receipt and got in my car. He was so sure the check was going to bounce that he called me before even calling the bank. This offended me hugely, as I've never had a check bounce in my life and we have had a great relationship with this vendor.

Just the nature of things these days I guess. I'm going to have to get used to it.

Evan
12-30-2008, 12:49 AM
He was so sure the check was going to bounce that he called me before even calling the bank.

*chuckles* Bounced check.

The bank profits more if they just process it and let you overdraw. A $35 whack for you, and it usually increases the longer you're balance continues to be negative.

I have yet to really encounter a bounced check, unless that is the policy of the bank. Only one bank I know of in this area actually does that.

huggytree
12-31-2008, 09:17 PM
All costs to your business must be passed onto your customers...you should raise your prices to cover your rip off customers.

You need to come up with a solution!....its out there!

I constantly have stress in my life due to slow payers...there's always 1 almost constantly...right now i have 3....2 are repeat customers and i know i will be paid and the other 1 is making me mad....

I do business 90% on gut feeling...i know when something is out of the norm....as work keeps slowing down i find myself taking risks which i know dont feel right...so far they all worked out....i have changed the way i do business recently to stop my worries.

As a plumber i can put a lien on a house....if im dealing w/ the homeowner i have 30 days to do a prelien and builders its 60 days...i usually wait until the builder is at day 50 before i pay $41 to do it...Now any job over $5,000 i do it before the job starts...im protected.....i just heard of some language that i can also include in my contract about the homeowner paying my legal fees if it goes to lien....so they owe me $5,000 and will pay $10,000 more so i can lien their house...the house gets sold and i get $15,000...now where can i hide that language..hmmmm...

i had a stressful problem and i somewhat solved it...every lien notice that gets sent out always results in a phone call the next day to solve the problem....the word LIEN makes homeowners worry....most dont know the costs to forclose...if they did it wouldnt worry them at all...

I would research small claims court

I would look into being a credit card only company

can you get a credit card as backup? they dont pay then you charge them on the credit card? i had a service hit me up for this service once...no builder would accept it, but your customers might....you may lose 10% of your customers, but your business will be stronger for it long term.

im the type who doesnt like to lose...id pay $1,000 to get $500 from these people...id spend 10 hours in court.....i dont like thieves....they get away with it and thats why they do it again and again..

vangogh
12-31-2008, 09:41 PM
im the type who doesnt like to lose...id pay $1,000 to get $500

I can understand where that desire comes from, but in the end you're better off letting some things slide. It sucks to get ripped off, I agree. But it's worse to compound that by ripping off yourself.

The one or two times a client did put one over on me I reworked my processes to ensure it didn't happen again. I looked at the getting ripped off thing as a lesson. It happened because I wasn't doing something right in my business. I learned, fixed the problem and now don't have the same problem anymore.

Evan
01-01-2009, 12:44 AM
Liens are tough, but if the interest rate is up there you can benefit in the future. Our family business put a lien on a persons home before I was even a thought (aka unborn), and we still haven't collected.

The good news, using the rule of 72, it doubled every 3 years.

FormerlyToolman
01-03-2009, 09:27 AM
I have heard, and based on my past business, I agree with this statement. If you have a collections problem, you have a sales problem, or a business model problem.

You have received some good advice on here. Prepayment, credit card, holding the copyright information... they are all good. Make a decision, and implement it. You may irritate some people, and lose a customer or two, but you will be much stronger in the long run.

Make collections part of the sales process. Carefully explaining your expectations for payment, and the penalties that will be there if they are not followed, will do wonders for collections.

Also, do not even bother to use a collection agency in the small business world. I have placed tens of thousands with a collection agency, and have managed to collect under $500. With the smaller accounts that I had, the agents strategy was basically to list them with credit agencies, and wait until they wanted to clean up their credit. She might send a letter or two, but that was about it. I even tried another agency that I found online. I gave them one account to see what they could do. They started off all gung ho, and within three days, I had quite a bit of information on the person. But, that is about all that I got.

Bottom line... you can not make someone who does not have the money, or is judgment proof, pay a bill. The collection agency can't either, and many employ means of questionable legality to try to collect. The damage to your business reputation from this can far exceed any money that you might collect. Handle any collections issues yourself, and if you are finding them increasing, change the business model, or the sales process.

Evan
01-03-2009, 09:31 PM
now where can i hide that language..hmmm...

No need to hide the language in the contract. Most people never read what they are signing anyways. They could have signed away their daughters second-born, and they wouldn't have a clue.

Vivid Color Zack
01-05-2009, 11:54 AM
Bottom line... you can not make someone who does not have the money, or is judgment proof, pay a bill. The collection agency can't either, and many employ means of questionable legality to try to collect. The damage to your business reputation from this can far exceed any money that you might collect. Handle any collections issues yourself, and if you are finding them increasing, change the business model, or the sales process.

I am honestly surprised and pleased to say I just received a check (granted only $200) from the CEO of a home builder that we have been working with that has shut its doors and cut off all phone and email communication. Not from the company, but from his own pocket. This returns a little bit of faith that there are still people out there who know the difference between right and wrong.