This time I thought it might be a good idea to talk about getting paid – given that the end of the financial year is fast approaching.
Bad debts are a negative asset – something that is working against you. They are costing you heaps and you have to pay gst on the services provided while not having received payment from the client.
So how much are your bad debts costing you? Are bad debts something you want to see the back of? If you could get rid of your bad debts, is that something that would be of value to you?
Bad debts are created when someone has failed to honour their commitment to pay for services or goods they have already used or bought. They have had the benefit of the product and have not given value back to the service provider. That all sounds pretty clinical, doesn’t it?
So let’s look at some examples – Once upon a time I worked for lawyers and bad debts was always a major problem. The client would engage the lawyer to provide a service, draft a lease, draft up a will, arrange for a restraining order to be issued, file for divorce, undertake land division work for a shopping complex owner or whatever. The lawyer would send out an account at the end of the month and then it would take a long time for the client to pay.
In the meantime, the client had the benefit of the service and the lawyer had not been paid. How much was that job really costing the law firm?
Do you think that’s fair? If you’re the person who says – so what, lawyers have lots of money, they can wait. Well maybe that is true and maybe it’s not. Lawyers, like the rest of the commercial world, do provide services that people require – if they didn’t need the services, the lawyers would be out of business.
What if the service provider was the local deli where you had an account. The local deli where you bought your lunch every day and just put it on the tab. The deli would then send out an account at the end of the month and you took two months to pay. Is that fair?
What that means is that the deli owner, the guy who has paid for the products he has on-sold to you, has had to pay his rent, his staff and other outgoings, has not had any money come in because the customer has not honoured his commitment to pay. The deli owner is, in effect, an unpaid banker.
What do you think happens to the deli owner when most of his customers do the same thing? It’s not long before he goes down the toilet
Is that where you want your business to go – down the toilet?
So how do you overcome this problem? Let’s take a look.
First – what do you want? It’s fundamentally imperative that you really focus on what you want.
Let’s assume you want to be paid. When – on completion of the job, at the end of the month, up front? How do you want to be paid – in cash, do you offer a payment scheme, by credit card, direct debit. How can you make it easy for the customer and, at the same time, get what you want?
Second principle of a successful outcome – to take action.
What are you doing about the situation? What could you do?
Given that you accept you are 100% responsible for the results of your communication with others and that the response you get is a measure of your effectiveness, I find it helpful to lay down the rules up front by explaining to the client what I expect. For example, if you are working on a long project you may have different needs and it is best to get it sorted out up front. It may be you elect to send out monthly accounts on a progressive basis in respect of the work done during that period and that way your cash flow situation is healthy and the customer is not getting any unwanted surprises at the end of the job. After all, the customer also has a cash flow situation which he needs to manage and you don’t want to send him broke with a massive bill he can’t pick up.
You might think this is a bit strange and I can assure you there are people who have not billed clients for two years. Needless to say, when the bill did arrive, the client almost had a heart attack. The reality is that the client has forgotten about the value of the service he has received over that period of time and in those circumstances the relationship between the service provider and the client can only go sour. There are no winners.
How grateful do you think the client would be if you explained the benefits of progressive billing up front?
The next step is awareness. Be aware of your client’s needs. It may be that something is coming up and he really needs the job done or he may have different payment requirements to you. It’s not unusual for a real estate agent and other people who request who request services on behalf of their clients to engage someone to perform those services. The fact is the real estate agent has made a contract with the service provider for the supply of those services and if the service provider has a 7 day arrangement, then legally the real estate agent is obliged to honour that contract. It should not be the service provider’s problem if settlement of the sale of the house is pushed out. The real estate agent has one contract with the service provider for the supply of those goods and the real estate agent has another contract with the vendor of the property for the supply of a different set of services. These are two separate contracts.
Our next success principal is the ability to be flexible around what you do. This means that sometimes you need to be less rigid to accommodate a variation or something may have come up that you hadn’t taken into account when establishing your initial outcome – the outcome to be paid on time.
This may mean you need to establish a payment system to help the client keep his promise to pay. Lawyers, for example, sometimes will not provide a service until they have funds in trust (that means they put the money into their trust account and then transfer the funds to pay the account once they have the agreement from the client to do so at the appropriate billing period). This facility is not available to everyone and you need to work out what works best for you and your client.
Sometimes the unexpected happens and there is a massive problem in which the client can become totally immersed. This could have the effect of the client closing off and not hearing you. To him you are excess to his immediate agenda and all the while you are still expecting him to honour his commitment to pay your account. What then? What would you do? How would you proceed?
Lastly, the final success principle relates to your attitude. How will you handle the good payers, how will you handle the slow payers, how will you handle the bad payers and the non-payers? How badly do you need the business of someone who doesn’t pay the bills? What is your business? If you are a bank, your attitude about this will be different to how you would feel about the situation if you were the deli owner we spoke about earlier.
Attitude is something you can set out up front. Sometimes it is really easy to preframe the arrangement by saying something like
“When I engage someone to do something for me I am happy to pay (whatever you want/do) and I expect other people to do the same for me”.
While you may think that is a bit “pie in the sky” and people don’t do that, I invite you to think about where your focus is and what you are projecting onto the other person. We get what we focus on and if we have a low opinion of ourselves and always come from a place of lack, our attitude to the world at large is reflected in our actions, it is mirrored back to us.
And what if, what if next time you set up a contract to provide a service to someone and you expect them to pay by a certain time, you tell them up front what your expectations are. This is a reflection of how you see yourself and your worth, of how you value yourself and your services. Who knows, you may receive a pleasant surprise and have what you want.
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