Recovering your debts as a Contractor
We can imagine this all too familiar feeling. A client has missed the deadline for payment and is being coy about when they will transfer owed funds to you. A sinking feeling that a long, drawn-out battle will begin where you have to fight for what you deserve sets in.
But, it doesn’t have to be so dramatic. There are steps you can take to ensure that you can quickly recover your debts as a contractor no matter the financial or environmental circumstance.
What is debt recovery?
First, let us define what debt recovery is. It is not just the process that kicks in when you have a non-payment, but can also occur when a customer or client doesn’t pay the full amount (partial payment) or doesn’t pay fast enough (slow payment).
Most of these situations can be solved before they begin by making some creative changes to the contract and payment terms, and when they can’t, that’s where Professional Recovery Services can help.
Better contract terms
A great way to encourage clients to pay back before the deadline (and get money back into your bank account faster) is to offer an ‘ahead-of-time’ discount. This technique is popular with electric and gas companies to get customers to pay up before their bills are due. In the contract, this can either be a flat discount or perhaps even a bonus towards the next order/billing period.
Use escrow services
Another way to ensure that you always get paid is to use a third-party escrow service. The money for the job will be held in a bank account controlled by a third party (who can’t touch the funds themselves, only release it). Once you have contractually fulfilled the service, then the third party will release the money. This method has an added advantage of releasing the money once the job is complete.
Always get a deposit
Many different contracts have little or no upfront fee. A lack of upfront payment is a mistake as it doesn’t give any gravitas to the agreement. It is always best to ask for a percentage, or the first payment period or so of the contract upfront. This makes the client feel like they have ‘skin-in-the-game’ and will find paying you the full amount later less painful.
Remind the client of a missed payment
Before taking action in recovering debt, it is best to remind the client that they have missed a payment. Plenty of scenarios are the result of forgetfulness, not because they are deliberately withholding payment. Send through a nicely worded reminder, and you might get paid right away.
When do you need to recover a debt?
Unfortunately, in the real world, even the above advice is not always practical and might not encourage a client to pay on time. That’s when you need to take steps to recover the debt. Depending on what payment terms you have set out in your contract, if the client has voided any of them, then you can begin debt recovery.
For those who don’t have a physical written contract (which you should have at all times), keep in mind that written agreements (such as email or text messages), or even oral agreements can stand up as a bonafide contract. If you do need to understand better what exactly constitutes as a contract, we suggest you engage a lawyer familiar with these matters.
There is a meaningful mindset change to make at this point. A client is not a client if they haven’t paid you. Don’t hold back all the steps in the recovery process because you want to ‘keep a client’ or ‘not make a bad name for yourself in the industry’. They haven’t paid you, not the other way round.
Try to have an informal discussion with your client about the money owed, and understand why they have not been able to pay. See if you can have a heart to heart and discuss the issues first hand. You might find that the client is having additional problems that you could help with, or that they might be able to offer alternative payment solutions.
At any rate, in the eyes of the law, you have now done everything you could to recover the debt before launching legal action.
Next steps in debt recovery
From here, you start to enter the realm of legal demands. You will need to format a letter of demand that stipulates that legal action will result if the client doesn’t pay in a short amount of time.
Alas, it is not a threat unless you can back it up, and from here, you will need to begin legal proceedings. We suggest engaging a debt recovery specialist, like ourselves, as it can be somewhat confusing for those not familiar with debt collection laws.
With this process, any contract should be able to recover some if not all of their funds. With the right first steps listed above, debt recovery can be made less painful, and you can get back to doing what you do best. If you are in a debt recovery dispute, need advice or if you need representation you can contact us today by calling 1300 306 619.