Geo Week News

September 10, 2014

How to Get Paid Faster

fast payfront

Do you own a business? Are you a contract worker? Maybe you’re an employee whose responsibilities include billing and following up with clients regarding outstanding invoices. If you fall into any of these categories, there is a pretty good chance that getting clients to pay you is one of the ongoing frustrations you face. I’ve run my own business for over seventeen years and still struggle with getting paid in a timely manner. I’ve even found that having a signed contract doesn’t guarantee I’ll get paid. However, I recently implemented some changes that have been successful at improving my average number of days to collect. But before I get to that, here’s a story you might find familiar.

A Familiar Story
Our typical project is billed according to percentage of completion. We work to complete a certain percent of the project, issue a progress invoice, and continue to work on the project. While we state we are offering NET 15 Terms, on average it takes about 60 days from the date of the invoice to get paid on a project. This can cause a lot of anxiety when cash flow is low and the client extends making a payment even longer.

The client typically expects the project to be delivered on time, but often does not hold up their end of the contract when it comes to making payment as agreed upon. I’ve actually been told by a client that “our policy is to pay you once we’ve been paid.” When I reminded them that I had a signed contract that shows they’d agreed to pay within 15 days, they informed me that the contract doesn’t matter their policy takes precedence. 

About a year and a half ago we did some work for a brand new client. After signing our contract and authorizing us to begin work, the client discovered he could get the as-built done for free by an architect who said he’d just “include the as-built” if the client contracted him to do the design work. The day after we delivered the first phase of our work, the client informed us that he was canceling our contract and going with this other architect. We said that it was fine, we’d just invoice them for the portion of the work we had completed and delivered. The client blatantly told us he was not going to pay us. We ended up taking him to court and won a judgment against him. 

However, with no information on his assets we had no way to exercise the judgment. We’ve yet to be paid even though we won our court case. We’ll have to spend more time and money if we hope to get paid, and we still have no guarantee we’ll ever see a dime.

Our New Approach
So, what can be done to avoid situations like these?  Is there any hope of getting paid in a timely manner?  Is there anything that can be done to guarantee payment? Recently we decided to take a different approach, especially with new clients.

  1. First, we will not begin work without a signed contract, period, and we now ask for a retainer (or mobilization fee) up front. We tell the client that upon receipt of the signed contract and the retainer we’ll schedule the work.
  2. All projects are now C.O.D. We will issue a draft deliverable in the form of a .pdf so the client can review the work, but the original CAD, BIM, point cloud data, or other deliverable will not be transmitted until final payment is received. We offer the client the option of paying with a credit card or by EFT (Electronic Funds Transfer). Of course, they can also overnight a check. You’ll be surprised how quickly a payment is received when the final deliverable has yet to be transmitted.
  3. We offer credit to some clients. This is because they may be dealing with bureaucracy, so their organization may just not be able to remit payment that fast, or they will not do work with firms requiring a retainer. But before we extend that credit, they must first fill out a credit application. The credit application contains all the information we’ll need to enforce a judgment should that end up being necessary. Of course, we reserve the right to reject their credit application if we see something we don’t like, or if we deem the client to be too big of a risk. If they refuse to fill out a credit application then it’s probably best just to let that client go and focus on clients who are more reasonable to work with.

The important thing here is to state these things up front during the proposal stage. We’ve been finding that if this expectation is set up front, they will expect to remit payment per the agreed-to terms and upon completion of the work. As a result, our average number of days for collection has been steadily decreasing.

If you are not already doing this, give it a try.  You’ve nothing to lose and a lot to gain. I’d be curious to hear what results you end up with.

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