Unfortunately, we are often hearing from our customers that their clients have withheld the final payment of a large project. This could be because either the final costs were higher than they anticipated (despite them having requested extras), the work isn’t up to scratch (despite them being happy with progress previously) or there is some other spurious reason they give for not paying.
The upshot is, our clients have to choose from either, going to a solicitor to start legal action and attempt to recoup some of their money or walk away saving the legal costs but losing their final payment (and with it the majority of their profit.)
So what steps should you take to ensure that this doesn’t happen to you?
- Carry out credit checks. If your client is going to be a limited company, we can do an online credit search on your behalf to check their credit rating. If your client is an individual then you can do a similar online credit check for a small fee using Experian or other such tools.
- Get everything in writing. We can’t stress this enough. Make sure the client signs an initial contract at the start of the project, with agreed stage payments. It may seem acceptable at the start of the project, when everyone is keen to get started and the customers are agreeable, to rely on verbal agreements. Often, the problems begin when the customers start being late with payments and then more difficult and picky as the project progresses. Unfortunately its usually too late at this point to agree matters in writing. If after the project has started, the client then makes changes or upgrades to the project, revise the original agreement and get them to sign it. If they are genuine, they won’t have a problem doing this. You might even get them to consider paying the extra costs of upgraded materials at the time of ordering them. After all, why should you take the financial risk?
- Stage payments. Break the project down into small, regular stages with small regular payments to match. Ensure that the client agrees in writing to these payment terms before you start the project. Also ask them directly if they have the finances in place before the project starts or if they are relying on obtaining additional finance at a later time. Obviously, you should be a little more cautious if they have not got the full amount of finance in place in advance of the project starting. You should also ensure you are quick to invoice once the stage has been agreed and signed off. Don’t offer credit terms on stage payments; ensure the client realises that as soon as the stage has been completed, payment is due immediately. That way you aren’t nearly at the next stage of the job whilst still waiting for the previous payment.
- Late payments. As soon as a payment is late, speak to the client and ask in a nice way why your payment is late. You might consider stopping all work or purchasing any more materials until the invoice has been paid. No matter how nice or apologetic the client is, your alarm bells should ring and you should be wary of the next payment being just as late or worse withheld entirely. You might want to consider shortening the stage payments to make sure you don’t risk too much on a large payment.
- Get legal assistance. If your attempts to recover the debt are unsuccessful. Your solicitor can chase the debt for you or recommend a debt collection agency. A solicitor’s letter may be enough to prompt payment without any further action. Small claims (for up to £5,000) can be dealt with relatively quickly and inexpensively using the small claims track. An alternative is to negotiate part-payments or to use an arbitration or mediation service. This can often help to resolve disputes without the expense of going to court. If you are a member of the FSB, they have a legal helpline that may be able to assist sending out solicitors letters.