I have noticed that many service providers run into dishonesty from clients – particularly when payment is concerned. I have been asked many times what can be done – here I list some control measures which may or may not fit everyone’s profile. Please add others or highlight examples.
First, let’s examine the notion: “No service. No pay” or “No work. No pay”. This common saying implies that payment follows service. Sometimes we are able to offer the service and receive payment at the same time. For example, students who attend a single college lecture can pay as they go in. This is not always the case – often services drag on for weeks. This problem is rarely with established clients (unless some misfortune happens to them which is unavoidable, and regrettable). The problem is usually while establishing trust in the beginning.
There are ways to manage the risk:
1. Render Partial Service
Render the service in a semi-complete condition. So that the actual payment is well timed with completion. For example, specific documentation or final registration must happen after payment.
2. Receive Partial Payment
Instruct the client that due to initiation expenses, they will need to provide an outright fee of Rx.
This partial payment could show their willingness and ability to pay. Example: Universities who ask for small administration fees is not seen in a bad light.
3. Cash Flow Stream
The project could be in several equal payments over the course of the project. The constant cash flows provide some demonstration of the ability to pay.
4. Evaluating Clients
It is common practice for a client to select a business. However, a less often practice for a business to select it’s type of clients. Receiving clients on recommendation is one way. Asking unknown clients about previous service providers is another way. Calling others providers (if applicable) could also help get an opinion – the logic is, if they were paid you will likely be paid too.
5. Establish & Streamline Debtor Processing
Processing debtors is actually standard business practice and part of normal business operations.
Being well prepared, have a process in place for dealing with debtors: Legal team, debt collectors or a personal feel for the process of collecting unpaid revenue. This will help putting your focus back to your day to day life since you will know exactly what to do with those who do not pay.
This is simple logic in practice: If the contractor does not pay his own staff, he probably will not pay his contracted staff either. This is in the nature of the manager and it is his style. Behaviour is compulsive: Trust your gut feeling about people.
There is nothing illegal about informing a person who is refusing to pay that this is bad business practice, and that you are well connected with other similar service providers or maybe know many journalists. Patience and persistence often makes people see the light – This means putting them in a position where they feel that the loss and trouble will exceed the payment they owe. I understand that this is not for everyone – maybe someone trustworthy can presents themselves as a manger or partner of your company.
8. Legal Contracting
The wording on the contracts must be examined in all their fine print. Do not be in a rush to accept as usually there is a reason why contract sighing is rushed. Wording is important and loopholes have a reason. A typical one is, “The service provider (defined above) shall receive payment withing 4 months of the commencement of service.”
The contract is the only place this is mentioned and what is in writing has preference in court over verbal agreements.
9. Self Insurance
If non-payment puts you in financial risk – keeping some funds aside (from previous income), for example in a Call Account at the bank (where it earns interest but is available on demand) can be a buffer to cover your expenses.
The funds must equal the minimum funds needed to cover your fixed costs for a period you deem relevant.
10. Session of Debtors
If your contracts are well structured and their value clear to determine – the debtors book can be sold whole piece to someone who is prepared to pursue the matter further. Sometimes called “factoring accounts receivable”. This way some money (not all) can be obtained while passing the risk to someone else.
11. Basic Credit Risk Assessment
The risk of default (non-payment) can be partially examined by asking, “Where and how does this organisation receive it’s income?” For example, coaching a national rugby team is not a high risk since the government has guaranteed payment and it’s revenue is certain. If a company can not explain where it receives it’s income from then possibly it is not receiving any. Online research is also helpful.
The best way to approach all risk management is with both eyes open rather than an attitude of suspicion and doubt. However if something has raised your suspicion then there was a reason why.
Many people like to do business the traditional way, where your word is your bond. There is nothing wrong with this – a few small precautions and observation helps greatly. Also, do not be put down by a bad experience. In the long term the successful business is an honest one.