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Dealing with Overdue Accounts

26 Aug 2005

I'm not sure how many of you out there working on your own are doing your own paperwork. Of course, by paperwork I'm refering to accounting. In my case I do. I'll wait while you finish oooo-ing and aaaaaah-ing. Up until 6 weeks ago this hasn't been a problem. But then something a little unexpected happened.

Just to clarify a little bit, I'm not a very aggressive person. I can be very patient when the situation calls for it and I generally look at the positive side of things. This includes looking for the good in people instead of focusing on the negative. Now on to my story.

The Backstory

I was contracted to design and develop a new website for a client, we shall call them XYZ Company. Everything went quite well. Problems did arise but they were dealt with. XYZ Company had been very diligent in making sure all payments, throughout the 6 months we worked together, were made on time.

The final invoice was submitted after the launch of the website. As I continued work on the numerous other projects on my desk, time went on. After two weeks I followed up on the invoice to make arrangements for payment. The client contact was out of the office and a message was left for them to contact me.

More work and time went by and still no return phone call or email. A quick email was sent and that was followed by another phone call by myself a week later. A full month had passed and still none of my messages had been returned.

This is to be expected with larger companies such as XYZ Company. I was not about to loose my cool and act unprofessionally. Another email was sent and another phone call was made. It started to seem like I was getting the run around because no matter what time of the day or day of the week I called, the client contact was “not available.”

For those keeping track, it was now 2 emails and 4 phone calls for me – zero phone calls and one email stating the account would be addressed at a time more appropriate for the client. My score was higher but I wasn't winning.

The Last Straw

My final email to XYZ Company enclosed yet another copy of the invoice and a note mentioning that the account would be handed over to a collection agency if the balance was not paid promptly. This was an avenue I had never taken before. I didn't really want to go this route but I run a business and businesses survive on money.

As with all my previous correspondence I received no response. This lead me to call the collection agency and start the procedure that will eventually land the final payment in my mailbox.

I still haven't received payment for my final invoice to XYZ Company and I still haven't heard from them. This situation is currently ongoing and I will keep you updated as new developments are made. In the meantime I wanted to offer a little advice in the unfortunate case that you find yourself in a similar situation.

The Tips

Step 1: Be Patient and Professional — No matter how pissed off you are at the client for not paying their bill you have to be the bigger person. If not for the fact that it will that make you feel better when the situation is resolved, consider what your actions may look like to a judge should the case go to court.

Step 2: Give the Client Ample Warning and Opportunity — As much as you want to get paid you have to consider your clients situation as well. Maybe their email server was down and they didn't receive the invoice. Maybe the accountant was on holidays and needs to be brought up to speed. Maybe you got caught in the middle of an employee change-over. Always give them the benefit of the doubt and send multiple copies of you invoice. Try dropping it off in person so that you know it was received.

Step 3: Be Prepared for the Next Step — Whether you may want to or not, you have to at least be prepared to take the next step. This would include researching local collection agencies, soliciting advice from collegues with experience in these situations, possibly consulting accountants or lawyers.

Step 4: Talk to the Agency — Even if you are trying to bluff your client into paying you need to at least know what you're talking about. The best way to find out what happens is to actually call a collection agency. When you call ask to speak to an actual agent and ask them questions. The more forthcoming they are the better. Don't be bullied into signing the papers right away. The best agencies will send you the papers but not pressure you into signing.

You should also find out their procedure for contacting your delinquent client. How do they contact them? Phone? Email? In person? What type of approach to they use? Bulldog or kitty cat (both of which are effective). After contact what's the next step? What costs are you responsible for up front? How are the fees and money handled? These are all good questions and you should know the answers to all of them.

Step 5: Final Notice Letter — As was told to me be sure to send the client a final notice. This letter should include another copy of your invoice, a definite deadline (5 business days is always a good choice), and accepted methods of payment (certified cheque or money order would be best). I think it's also good to mention that the account will go to collections if the payment is not received according to your terms.

Because the collection agency only gets paid when you do, they take the money out of what you get. In this case it's also a good idea to include a statement that mentions gives you an opportunity to offset that cost onto the client. Something along the lines of “If payment is not received according to the terms outlined above a 25% payment collection fee will be charged to the account.” Obviously substituting whatever percentage your collection agency will take.

Step 5a: Deliver the Final Notice — You need to ensure the final notice is actually received so I would suggest delivering it in person. If that is not possible for you at least send it via registered mail. That way at least you have proof the letter was received in the form of a signature.

Step 6: Wait — If the terms and conditions of your final notice are not met exactly as you have them laid out, go directly to the collection agency. Do not pass go, do not collect $200. Let someone else worry about dealing with your delinquent client, you have better things to do and better clients to work with.

And You?

Have you gone through a situation like this? Every had to use a collection agency before? What steps did you take to get your payment? Let me know in the comments.

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