It is inevitable. At some point in your career as a small business owner you will face a problem with a client not paying you (if you haven’t already.) This week, let’s talk about getting paid and what to do when you don’t get paid.
Safeguarding Yourself Upfront
The first step in getting paid is getting the terms of payment into the contract you have with your client. You want to make sure your contract does everything to HELP YOU get paid. Katy Carrier of Carrier and Associates shared her contract knowledge with us a few months ago. I’m going to brush up on some of the points she made in relations to getting paid.
Deposits vs. Retainers
Do you ask for a ‘deposit’ from your clients? Time to rethink this. Katy shares, “In the eyes of the law, the term “deposit” is generally used to describe a first payment toward the performance of services. So, if you fail to perform the service (like because the wedding is called off a few months before the big day), the deposit would need to be refunded. It doesn’t matter whether you call it “non-refundable” – if a court finds that you didn’t actually earn the deposit payment, that money must be refunded to the clients. The better alternative is to use the phrase “non-refundable retainer.” Unlike deposits, retainer fees are used both to book services for a specific date, as well as toward expenses incurred after being retained by the clients. Those expenses can include any work done before the actual wedding day, like consultations, meetings, planning and paperwork.”
Terms of Payment
Your contract needs to be clear about the terms of payment. If you require a 30% retainer, a 40% second payment, and a 30% balance payment, you need to listen these percentages and the corresponding amounts in the contract. It also helps to have the actual due dates on the contract. You’ll want to describe what forms of payment you accept (check, credit card, Paypal, etc.) You’ll also want to describe any penalties for non-payment or for ‘non-sufficient funds’ on a check.
The contract should specify what will happen if the client fails to pay. Will you seek arbitration or mediation with the client? Katy shares, “Arbitration is a type of dispute resolution that is different from a lawsuit filed in a court. Arbitration is much less formal and more private, and can be handled either with or without an attorney, and is generally much less expensive and time-consuming than courtroom litigation in front of a judge. A single arbitrator or a panel of arbitrators is assigned to your dispute to listen to both sides and make a binding decision.”
Dina Eisenberg of Speak Up Powerfully shares her thoughts on mediation as a solution. “Mediation allows the parties to drive the discussion [rather than the lawyer], find their own solution and address interpersonal issues that can’t be as easily reached in arbitration. Mediation is widely available; in fact, most cities have local non-profit organizations that work with individuals and businesses.”
Tomorrow, we’ll talk about invoicing, payment reminders, and other ways to GET PAID.