In this fast paced, technology-based economy, transactions with clients are often made with a verbal agreement, handshake, or even text message. I call the beginning of such a relationship “the honeymoon phase.”
For service-based businesses, you are selling knowledge and experience borne out of many years working in your field. The value you provide to your clients is completely your time, energy, and expertise. You take pride in helping your clients be successful, and trust that they will pay you for that value.
Emotional Fatigue
Unfortunately, as time passes, misunderstandings in responsibilities, payment, and other important terms may occur.
When a client does not pay for your services, the emotional anxiety and stress is palpable. You did your part, helped the client, and when they don’t pay you feel totally taken advantage of. How will you pay your operational bills? Will other clients not pay also?
What you thought was a mutually beneficial relationship is suddenly shattered.
Emotional Fortitude (EF)
Rather than worrying constantly about client payment, strengthen your emotional fortitude from the very beginning by protecting your client relationships with the right agreement at the right time, allowing you the peace of mind to focus on your day to day growth.
What does the “right agreement” mean?
EF Step One: Have a Client Contract
That’s right, you need a written agreement signed by your client on Day One. Do NOT perform any services without a signed contract.
So many service-based businesses don’t see the necessity. Trust me – the first time a client doesn’t pay, you’ll wish you had a contract.
EF Step Two: Specify Fee Structure
Your contract should specifically detail how much you charge for your services. Make it clear what the client gets for their money. A pre-payment in some service industries is a great safety net.
EF Step Three: The “In Case They Don’t Pay” Terms
Your contract should include in detail and in proper legal terminology:
- Payment terms: when payment is due and the penalty if late
- Collections: if they don’t pay, they reimburse you for your collections costs
- Dispute Resolution process: What state’s venue? Resolved by mediation, arbitration, or directly to lawsuit?
- No guarantee of success: make it clear the client pays you even if the service is not successful in their opinion.
With the right contract signed, (prepared by the right attorney of course) you will have the peace of mind that your hard work is protected and secure. It’s your insurance policy “just in case.”
The newly found confidence that your business is protected will allow you to focus on what you want to accomplish, experiencing the joy of entrepreneurship to its fullest.
Legal Fortitude (LF)
Having a signed contract does not guarantee the client will pay. Although it’s a huge starting point, what do you do when the client doesn’t pay?
LF Step One: Overdue Invoice Reminder
Give your client the benefit of the doubt. Maybe they forgot. Maybe they are waiting for their paycheck. Send a polite reminder that their invoice is overdue. In some cases, the client will pay and you’ll breathe a sigh of relief.
LF Step Two: Breach of Contract Notice Letter
If the client ignores your overdue invoice reminder, the next step is to put the client “on notice”. It’s usually best to have the assistance of an attorney at this point, however, the key to a breach of contract notice letter is:
- Tell them they are considered in “breach of contract”
- Quote the contract terms verbatim
- Include a deadline for payment plus any interest due
- Tell them that if not paid, you reserve the right to take legal action
In many cases, the client will pay when they receive the breach of contract notice letter. Not a guarantee but still a low-cost method of collecting payment.
LF Step Three: Disengagement Notice Letter
Whether or not your client pays when reminded or put on notice, you will need to make a decision whether you want to continue to work with this client in the future. If your decision is to terminate the relationship, a disengagement or contract termination notice letter should be sent to the client.
The disengagement letter should clearly point out that you are terminating the relationship. It’s totally up to you how much detail you provide. Your termination clause in your contract may also require certain details.
If the client still has not paid, include a restatement of the amounts due and legal ramifications.
I have found that if a client doesn’t pay in response to the breach of contract notice letter, they typically are not going to pay after the disengagement letter either. However, the letter protects you from future expected services being legally required.
LF Step Four: Collections Agencies
If your client still hasn’t paid, you have two options.
Your first option is to just write off the loss and chalk it up to “lessons learned” in business.
Your second option is to hire a collections agency. Most collections agencies receive a percentage of what they are able to collect and you get the most.
The choice is totally up to you.
End of Story
I have personally experienced my own clients that didn’t pay for services I provided; and helped others get payment from their customers. Many respond and pay after the legal notice of breach, especially when the contract terms are well written. There’s no guarantee.
Clients not paying is one of the may risks you take as a small business owner. Choose your clients wisely, legally protect the relationship, and, when things go awry, know this is just a bump in the road, and you will succeed!
Do you need help to build your emotional and legal fortitude with client contracts? If you are a Florida business, I can help. Contact me here.
Want to take the first step to legally securing your success? Get your Free Ebook today!
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