When Clients Don’t Pay: What Your Contracting Business Can Do
The system for payment in your business seems like it ought to be fairly straight-forward. You send someone an invoice, and they should pay it. Of course, few things about business are ever as easy as they seem, and getting paid can be one of them. When clients don’t pay for work that you’ve done, you’ve got a few steps you can take depending on the situation. Here’s some ways you can try to get payment, and a few tips to help you avoid the situation in the first place.
- Invoice on Time
Sometimes it’s difficult to stay on top of administrative tasks. Things like invoicing can create huge problems for your business if you let them fall to the wayside. The way you plan for payment depends on the type of job you do. Some construction fields call for payment at the time of service. Others require you to send an invoice and collect payment in a specific amount of time. If you say that you will send an invoice within three days or a week of the project, make sure you stick to those deadlines. Failing to meet your own standards may communicate to clients that you are flexible about how they meet them, too.
- Be Clear About Expectations
There are tons of stories about clients who work with contractors who aren’t clear about what they expect. What you don’t read is how badly this can burn you, too. When you provide a bid or estimate on the project, make sure that you are clear about when and how you expect payment. California sets restrictions on the ways that contractors can collect payment, particularly if you want money at the start of the project. With few exceptions, you’re only allowed to take a small portion of the total before you begin working. Whether you expect payment as soon as the work is done or you’re billing on a Net 90 schedule, you need to put this in writing. This way, you can refer to it if clients claim confusion about it.
- Clarify Payment Rules in the Contract
Having everything in writing is the best way to protect you, especially if you end up in a situation where you have to escalate your attempts to collect payment. Prepare a contract or perhaps more than one that relates to each kind of project you do. Don’t take jobs for clients who try to avoid making a commitment. In your contract, be sure to include:
- how much money is due and when
- how you plan to bill them
- which forms of payment you accept
- what happens if a payment is late
This might be a good opportunity to have a lawyer with experience in California construction to review your contract language.
- Avoid Digging in Deeper
Once you encounter a client who is not meeting their payment obligations, it can be tempting to find ways to get payment however possible. While it is perfectly reasonable to give them some benefit of the doubt, you’ll want to avoid digging in deeper. For example, on smaller projects, a client might ask you to accept a discounted payment instead. As a general rule, this can put you in a bad position for future work. If the payment is just for one stage of the project and there are several others coming up, see if your contract allows you to suspend work until you collect and how you can legally do so. Depending on local laws, you may not be able to just pack up your equipment and leave, so save this until other efforts have failed.
- Consider Legal Action
As a last resort, it may be worth taking legal action against the client. This is where contract language becomes really important. Before you start, review the contract and make sure that you have met all of your obligations in ways that you can clearly prove. Because you are claiming that they breached the contract, taking a client to court brings scrutiny on both sides.
Payment is how you keep a business running, but sometimes that payment is rather hard to get. To get started building your contracting career, visit CSLS today!
