Give Me My Money! How To Collect On Debts
One of the biggest headaches for freelancers and small businesses is collecting on what you’re owed. Unlike a big bank, for instance, who has a name and large operation to compel payments, a lone worker can have trouble convincing a client that paying them should be a priority.
Pre-planning is the best course for freelancers and entrepreneurs. Have a debt agreement in place and signed by your client.
“The first thing you should do before you do any work is have the person sign an agreement or contract regarding the work and payment. If you do the work without getting any paperwork, you need to get paid as soon as the job is done, in person. This is the most effective way to get paid,” Michelle Dunn, author of “Collecting Money Series “of ebooks, tells MadameNoire.
When a client fails to pay, take action immediately. “First step is to assert your rights to be paid pursuant to your agreement. Someone who has performed the agreed services and/or delivered the goods should invoice for payment immediately. The invoice is a demand for payment,” notes Jocelyn Nager of Frank, Frank, Goldstein & Nager, P.C., a law firm that is devoted exclusively to the collection and prevention of bad debt.
If you are a freelancer there are various things you can do to protect yourself from amassing bad debt. “The best way for freelancers to get paid is to have a credit policy which includes terms favorable to the freelancer. Require a sizable deposit, progress payments and a small balance, if possible upon delivery. Do not continue working and/or accept new engagements from the client if you are not getting paid,” explains Nager.
Small businesses may consider a debt collection agency. “Act quickly if payment is not made in accordance with the terms of your agreement. Protect your rights to get paid as best as possible. If you can lien, go ahead. Enlist the help of a collection professional ASAP. Your best chance of collecting is within the first 90 days,” Nager points out.
While freelancers can hire debt collectors as well, the cost might not be financially feasible unless it is a significant debt. The fees for collection agencies can vary. Some charge a flat fee to work on a fixed number of accounts. Most however will take a percentage of the debts collected, from 20 percent to 50 percent. Older accounts, which are harder to collect on, will cost more.
“It is feasible for a freelancer to use a collection agency as long as they have documents to verify or prove the debt. Examples would be a signed agreement or contract, a signed credit app. an email requesting the work and outlining compensation, etc.,” Dunn explains.
Whether you hire a collection agent or not, you should not spend a lot of time chasing debts. “Your time should be spent working on and securing new engagements. Spending time on collecting debt is throwing good money after bad, especially after the first 90 days,” advises Nager.
How To Get Your Money
— Have a signed agreement with your client, with terms favorable for your situation.
–Check out potential clients. “Prescreen your prospects before doing business with them,” says Nager.
–Act fast if your client owes you money. Contact them first and if this does not work, consider a collection agency.
–Use the personal touch. “Visit them. If that is not possible, call them until you get them on the phone,” suggests Dunn.
–Make a deal. Find out why your client is behind in paying, and figure out a way to make repayment work for the both of you. “Offer them one or two solutions to pay the debt, and make a repayment agreement,” says Dunn.
–Put everything in writing including the initial agreement and the payment agreement. When collecting the debt send the bill via mail. “Send a confirmation letter in a flat rate priority mail envelope with delivery confirmation. If you never spoke to them send a demand letter in this envelope,” says Dunn.