Billing, Record Keeping, and Decisive Action
You should establish and maintain a functional and efficient system for billing and invoicing clients as well as an organized system of record keeping and reminders. First, set up a billing regimen and stick to it. Establish a payment schedule and clearly establish when payments are due and what forms of payment are acceptable. Work these details into your contract. It is standard for designers to request an up-front retainer. Retainers can be based on a percentage of the total contract sum or can be a flat-rate fee that is deducted from the final sum. Some small design firms request a $5,000 retainer to cover initial costs and time and then establish a payment schedule.
After receiving the retainer, some designers bill their clients hourly. If this is your practice, keep detailed time sheets that show the time spent and a description of activities. This is important should you need to sue the client later. Send your bills on the same day each month and keep track of due dates.
Second, establish a system to help you track client’s payment due dates. Once a payment is 30 days past due, send out a friendly reminder. Then allow five to seven days before sending a second reminder. Your second letter should demand payment within three business days. If, after the three days, you have received no response and no payment, send a final letter advising that you can no longer continue to work on the project until the outstanding invoice is paid in full. Also explain that if payment is not received immediately you will have no choice but to pursue any and all legal remedies. Then be ready to follow through.
All of this will ensure that no receivable is more than 40 days past due at the time that legal action is taken. Timing here is critical. Once a bill or invoice is more than 90 days past due, the likelihood that you will collect it is only about 25 percent. By sticking to an established method of billing and taking decisive action, you can increase collection by 90 percent.
Gone are the days of handshakes and gentleman’s agreements. You need to have a signed contract before you begin any work. … Shortcuts on paperwork will lead to shortchanging yourself on fees.
If you are a designer who bills in percentages, such as half the time of signing the contract and half upon substantial completion, you need to rely more heavily on your contract to define such terms as “substantial completion.” You also need to be ready to take action after an initial warning or two if your payment terms are not strictly adhered to.
Gone are the days of handshakes and gentleman’s agreements. You need to have a signed contract before you begin any work. All change orders or requests for additional work also should be documented in writing, and make sure that such requests are signed off on by the client. Shortcuts on paperwork will lead to shortchanging yourself on fees.
Make the Law Work for You
If you have followed all of this advice and a client still refuses to pay, make use of your legal options, the two most common and effective being liens and lawsuits.
A lien is a person’s interest in another person’s property because of a debt. There are many types, but they all have the same purpose: To guarantee that the property owner repays a debt owed to the lien holder. Lien laws can be complex and may vary from state to state. In some states, you are required to file your lien within 90 days from the last day of work on the project, then serve both the debtor and property owner, if different, and then file the service proofs with the court clerk. Failure to comply with any step may result in the lien’s rejection.
After filing and serving a lien, most states require you file a lawsuit to foreclose on in within one to two years. Failure to do so will result in a bar against recovery. A lien in and of itself is never enough to guarantee payment.
Another way to procure the money is to file a lawsuit for breach of contract, unjust enrichment, or another applicable cause of action. Depending on the amount of money at issue, lawsuits may be resolved quickly or may drag on for years. The key to winning a lawsuit is to have all of the necessary documentary evidence to support your claims.
Designers choose to enter the profession because they want to design and create. No one wants to spend the majority of their billable hours with excessive paperwork, tracking down clients who have not paid for services—which is why it is so important to set up fee requirements and expectations at the start of a relationship. Clients are less likely to take advantage of you when you have a clear and concise system of billing and contractual support.
Hire an attorney to help you set up your contracts. This will save you a great deal of money in the long run. And when you have done all you can and the client still refuses to pay, act quickly and hire an attorney to help you file a lien or commence a lawsuit. Unfortunately, our current economic climate does not allow you to give delinquent clients the benefit of the doubt.