From time to time, every small business owner has to deal with a non-paying client. It’s often a minor inconvenience, but larger problems follow when multiple non-paying clients start impacting the cash flow of a business to the point that it can’t take on new work, or must sacrifice its marketing and sales efforts, or even shut down temporarily. In the construction industry, many tradesmen or smaller contractors find themselves in financial trouble as a result of over-extending their labor and their credit, while chasing down payments from completed jobs. In this article, I have provided some tips below for preventing and handling this troublesome issue.
1. Research Your Client
I recommend you conduct as much research as possible on your new client before you agree to do business together. Google the client or company name and find out what you can about them. Use Florida’s SUNBIZ online to find out how long the company has been in business, and who the owners are. Try to obtain references from other companies that have done business with your prospective client, and never be afraid to ask the client performed satisfactory work, completed the project on time, or had any issues with rendering payment throughout the project.
2. Draft & Execute a Real Contract
Before you begin any project with a new client, I strongly recommend you draft and execute a contract that will protect you from non-payment. The contract should include language that clearly addresses terms regarding collections, remedies for the breach of contract, and the payment of attorney fees that may be necessary.
Here at The Law Office of Brandon Woodward, P.A., we can help you draft an appropriate agreement that outlines clear billing and payment procedures. For instance, an agreement might include a strict fee schedule to be followed as the project moves forward. Two other examples might be language that requires payment for the raw materials upfront before work even commences, or a requirement that the final payment are due within 30 days after the work is complete.
A written agreement that is perfectly clear about payment will help you collect (and maybe even cover your legal bills) in the event of a legal dispute. However, without a legally enforceable contract, your path to getting paid is significantly more difficult.
3. Maintain Communication
You should always maintain communication with clients regarding payments. As you may know, small businesses often rely on independent contractors. But, as these contractors become more involved with their work, they occasionally forget to pay their outstanding invoices.
By making sure you maintain communication with your client throughout the duration of the project, you stay firmly in your client’s mind. If you are unequivocal and clear about your payments then you should have much better odds of being paid in a timely manner. Alternatively, if you don’t bill consistently, don’t use billing reminders, or keep working on a job without receiving payment, then your company may be forced to “chase money” which is always frustrating, and often unsuccessful.
The Law Office of Brandon Woodward P.A. is eternally grateful that you have visited our web site or read our blog. The materials and information contained here are provided for informational purposes only and are not to be considered as legal advice. For questions about cash flow, collections, contracts and their affect on your business, or any other legal issues facing your business, please a message us at firstname.lastname@example.org and we’ll give you a totally FREE consultation.