No matter what industry you are in or what you sell, a scary question always looms on the business owner’s doorstep: What to do about non-paying clients. Hopefully you will never run into non-paying clients or customers. We hope all your business is paid for up front or in a timely manner. Unfortunately, some business owners aren’t so lucky. Here are a few suggestions for how to deal with or prevent non-paying clients.
Retainers: From day 1 Sutton Creative Studios chose not to require retainers from our clients. We understand that many of our business owners are just starting out and not able to fork over hundreds, if not thousands, of dollars to secure our services. Whether this was the right decision I have yet to find out.
Retainers can be structured in a variety of ways:
- Time based: Whether weekly or monthly, time-based retainers usually require the client and service provider to prepare an estimate of how much time the contractor will be working. For instance, a virtual assistance may be contracted to work 10 hours a week. Depending on the terms of their agreement, a time-based retainer requires the client to deposit money into a savings account for the work they are having done. This savings account, however, is the contractor’s account. Retainers don’t normally cover the weekly or monthly invoices, which the client is still expected to pay. Retainers simply ensure that if the client walks away without paying the contractor is covered.
- Project-based: Elance is a good example of a project-based retainers. Their fixed rate projects often require the client to deposit the price of the winning proposal into their (Elance’s) escrow account until project completion.
Work Stoppage: Simply put, a work stoppage is exactly as it sounds. If the invoice is not paid within the time specified in your contract you stop work. Period. No excuses are accepted from the client, and no work continues until the invoice (and all outstanding invoices in my opinion) is paid. Again, accept no excuses. Don’t let your client say, “well I need you to … and then I’ll pay you.” Why? Because chances are you’ve already been waiting weeks, if not months for your invoice to be paid. Why should you believe that if you spend any more time working for your client that he/she will pay you?
I don’t want to sound cynical when I say don’t accept excuses. I, Kim, like to believe the best and think positively. However when you are doing work you were contracted to do with promise of payment within a certain amount of time, you deserve to get paid. No ifs, ands or buts.
Work Revert: Yup, work revert. Here’s an example: You’ve been working on a client’s website on an hourly basis with an agreement in place to be paid on a weekly basis. The contract states work will cease if the contract remains unpaid after three weeks. What can you do? Remove the work you’ve done for the past three weeks, or at least make it in-accessible to your client. If you have to, change the password to the website and put up a “Under Construction” page in place of what you should have had there. Once the work is paid, especially in WordPress, you can revert all changes back in a click or two. I must admit, I don’t know if this is legal. Technically the website is not owned by you unless your contract specifies that it’s your property until the invoice is paid. HOWEVER, the services you provide ARE your property if they are not paid for. So protect your intellectual property and make it inaccessible until there’s money from your client in your account.
Have you had problems collecting money that was owed you? Share your story and how you were able to collect in the comments section below.
Kim Sutton is the Managing Partner and Chief Everything Officer of The Sutton Companies, including Sutton Strategic Solutions and Sutton Creative Studios. She is a graduate of The School of the Art Institute of Chicago where she earned her Bachelor’s Degree in Interior Architecture.
An avid reader and passionate learner, Kim is constantly researching, studying and developing business improvement strategies. When it comes to client work, Kim especially enjoys helping her clients develop innovative marketing strategies and sales funnels, particularly when they are using Infusionsoft to automate all the heavy lifting. To find out how you can further develop your company’s marketing and automation strategies schedule a 1-hour Business Boost Strategy Session by clicking here.
In her free-time, Kim cherishes the time she gets to spend with her husband, Dave (her business partner), and five children. She also enjoys reading, knitting, writing and playing video games.
Get a copy of Kim’s FREE guide, “10 Top Tools for Small Businesses” by clicking here.