When it comes to running a business or a project, whatever you set in a written agreement is only as good as the processes and procedures it reflects and those that support it.
Here’s an example of how NOT to do it.
Earlier this year, I rented out my flat to a friend. I had a written tenancy agreement, but it didn’t even cross my mind to go through the rigorous processes that I carry out with an arm’s-length tenant, i.e., a credit check, a copy of their passport, and a reference check from their bank, employer, previous landlord, etc. Over the years, I’ve rented the flat to friends, old and new, without these formalities. I didn’t insist on taking a deposit and first month’s rent before handing over the keys, as I’ve always done with strangers. I’d been easy-going with friends before and they’d always paid the rent.
But guess what? This one didn’t pay me a penny.
Fortunately, the written tenancy agreement enabled me to obtain a court judgment. The moral of the story is: ‘An ounce of prevention is better than pound of cure.’
Putting Provisions and Systems in Your Business
‘Prevention is better than cure’ is also the case when it comes to dealing with the legalities that underpin your business. Getting the foundations right can seem like an unwieldy task at first, but any pain involved in making the effort upfront is nothing compared to what you’ll encounter if things go wrong. But talking about money can be awkward for many of us, and we might find ourselves avoiding such ‘difficult conversations’.
But having systems already in place eliminates guesswork and makes the process easier – for you and your clients/customers. Systematising your payment process can help both you and your customers avoid conflict, confusion and stress. Here’s a step-by-step of what systems to put in place.
SYSTEM 1: Define Your Estimate Process
Many business owners who provide services need to give potential clients an estimate before working with them. While it’s essential that you price your products or services correctly in the first place, there’s more to the estimate process than just quoting your fee. It offers an opportunity to negotiate payment provisions that will pave the way to your getting paid. Always go through these provisions clearly during your consultation (and be sure to provide them in writing).
SYSTEM 2: Take a Deposit
Payment up front reduces the risk and potential impact of not being paid later. A deposit is an initial, though not watertight, indication of willingness and ability to pay.
A deposit gives a cancellation policy teeth. If you provide services and the client cancels capriciously, say the day before, what is the likelihood of the client happily paying your cancellation fee? Taking a deposit enables you to collect this, but you must tie it in with your written payment terms, which must specify what the deposit is for, e.g., to use towards payment of the final instalment of your fees or to apply to any cancellation fee.
Finally, payment of a deposit can set the working relationship in motion. Having made a payment, especially a high one, gives clients an incentive to provide any input you need from them on time as work progresses.
SYSTEM 3: Offer Payment in Instalments
In many contracts, payments are neatly split, perhaps 50% upfront and 50% at the end. Longer contracts might entail monthly instalments.
As mentioned above, a written contract or written terms should reflect the project at hand and not the other way around. It can be absurd to carry out your project according to whatever a “standard contract” you have sourced or wording from an online resource tells you to do. If you negotiate instalments so that the amount and timing of each instalment is tied to your outlay, such as materials or other expenses, it will nourish your business. Otherwise, you may be out of pocket for long periods of time.
SYSTEM 4: Offer a Discount if Clients Pay in Full at the Outset
Offering a reduced fee if the whole amount is paid up front can save you valuable time and sanity in chasing invoices later.
Of course, the other party may not agree to pay all at once; it can make sense to withhold a final payment, or they may wish to manage their cash flow. It’s open to you to then reach a compromise, as even some payment up front is a comfort.
SYSTEM 5: Send Your Invoices Immediately Upon Agreement
Waiting to send your invoice can sometimes delay your payment considerably, especially when your customer/client is part of a larger company that might have complex financial (and often bureaucratic) processes of their own. One of my long-standing clients has payment terms of 35 days, and believe me, this is usually how long it takes to get paid by them. The reason is that one person receives the invoice, then sends it for approval from a manager, who then sends it to accounts for final sign-off, who THEN enters it into the next monthly pay-run. Phew! The thought of such an unchangeable, plodding process should surely prompt you to become fastidious in submitting your invoices immediately.
SYSTEM 6: Keep a Written Record of Your Payment Terms
Contracts can be made verbally in the UK; even if you have nothing in writing, you can still have a contract. However, the terms will be uncertain and it can be difficult to enforce; if you do start a court action, the court will wish to establish whether a contract was properly formed, work out what the terms were and only then start looking at who’s wrong or right.
Clear written records save angst in the long run. At the very least, record key payment and related terms, such as a description of the work you are doing, the agreed fee and any deposit, instalments and payment timings, as well as provisions to stop the work from stalling, as this in itself can be a barrier to payment. Your choices for a written record are to have a lawyer-made contract or to attempt to write your own basic contract, which you can put in place by an exchange of email. You can find some ideas of how to do this in an article I wrote on my 6 Minute Bites blog called ‘A Simple Way to Record Your Business Agreements and Avoid Bad Memories’.
Where there isn’t a formally written contract, quite often, some of the terms will be evidenced in writings such as emails, or texts, or one person’s notes. This is better than nothing; a crisp email setting out the agreed fee and payment dates can help short-circuit any arguments about payment later. It’s even better if there’s also a short email reply.
SYSTEM 7: Spell Out EVERY Aspect of Your Payment Terms
In your written payment terms, it’s essential to include and define clearly EVERY element:
- The amount agreed
- The timing of payment, including payment dates
- How it will be paid (deposit, instalments, single payment, etc.)
- Your policies for cancellation, travel expenses or additional charges (e.g., printing fees).
- Your policies for changes of contract/services (e.g., do you offer refunds or a credit?)
TIP: If you plan to charge a cancellation fee, also remember it will be easy to collect if you hold a deposit.
SYSTEM 8: Make Sure to Get a Confirmation Email from Your Customer
A question that almost always comes up in contract workshops is how to get someone to acknowledge your email. This is relevant whether you’re setting out everything you’ve agreed or just the details of payment. The short answer is to ask and remind them until they do.
Asking a question means you are more likely to receive a response. However, we’re often less formal in emails and text messages, and this can distort what you thought you said in the ears of others. I recommend using clear, direct language such as ‘Please will you email me by return to confirm this is also your understanding of what we’ve agreed’, so that the other person knows exactly what to do.
In the 7 Graces, the Grace of Directness encourages us to express ourselves clearly and authentically, giving others a real choice. This clear expression is also powerful in taking our business to where we want it to be. In recording our business agreements, it is essential that the language we use is congruent with our message.
SYSTEM 9: Systematise Your Unpaid Invoices Procedure
An invoicing system is not just a matter of sending out your bill. It’s vital to have a clear procedure for chasing up unpaid invoices, too.
The key here is knowing the options available to you and deciding when to move from being friendly to fierce.
Where you obtained a deposit or have been paid in instalments, you probably have access to the relevant person to send polite reminders via email or over the telephone. An obvious (but often overlooked) point is to make sure you are dealing with the right person.
If you wish, you can outsource all or part of your invoicing and debt collection. However, if you’re managing your invoicing procedure yourself and you’ve moved past the polite stage, there are two helpful legal devices you can use (at least in the UK).
The first is the statutory right to charge interest on late payments at 8% over Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act of 1998. This only applies to business-to-business contracts, and the payment must be late. Under the act, a payment is late where it isn’t made on an ‘agreed date’, so a written record of payment dates will help, and you must have issued your invoice and the due date must have passed. There may be similar statutory rights in other countries, so I advise you look into this. If you are not receiving any response to your ‘polite reminders’, you can up the ante by saying that you are now entitled to charge statutory interest, but you won’t do so if the matter is settled immediately. Be sure to specify exactly what this means, i.e., ‘No interest will be charged if paid by the end of the next working day.’
The second is a service provided by Her Majesty’s Courts Service; Money Claim Online. This is a user-friendly service. You can bring your own claim online for sums under £100,000. Bringing a claim will be more straightforward is you have a written record of the payment terms. When you’re relying on conversations, you may have an uphill struggle.
If the amount owed is over £100,000 or is complicated, you may want to speak with a lawyer. Many of them will give a free initial consultation; use that time to find out how much and how long it will take, and to get a clear picture of the likelihood of success. Some professional bodies will also give you access to legal advice, so this is worth investigating.
As ever, getting everything down in writing is a good guiding principle when it comes to setting up your business for success. And when it comes to getting PAID on time, it’s essential that you also pay attention to the processes at either end.
Unfortunately, standardising our payment process is one of those uncomfortable things that many independent business owners overlook, only to be burned down the road. I hope this article has inspired you to start systematising the financial side of your business, so you will always get paid for all the great work you do.
I hope you found this information useful. I’d love to know what you do and any breakthroughs or ‘aha’ moments you had from reading it.
Until next time,
Lubna Gem Arielle
20 June 2014
LUBNA GEM ARIELLE is lawyer who went back to art school and has a portfolio career. As a legal educator, she lectures on MA programmes at Sotheby’s Institute of Art and Birkbeck, makes law accessible for creatives as a professional speaker and is a writer/presenter for Legal Network Television. She is a legal adviser to Artquest, providing advice to visual artists. In her creative practice, Lubna works with ways of sharing information, stories and knowledge and the interplay across real and virtual media. Her current project is 6 Minute Bites, and has included ‘teaching in Tweets’, live events, and using improvisation exercises and role play to disseminate legal know-how to creatives. She is also a legal experiential practitioner with the Personal Communications Academy.
Lubna is a graduate of the 7 Graces Foundations of Ethical Marketing Course and member of the 7 Graces community and the Professional Speaking Association.
Upcoming Events with Lubna
June 19th: How to Keep Your Email Marketing Legal, http://1230.co.uk/events/1230-mayfair-ludna-gem-arielle-networking/
June 25th: Contracts for Artists, http://artsmartlondon.co.uk/event/contracts-for-artists
Lubna on Twitter @info_bites
Lubna’s Website: http://www.6minutebites.com
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LYNN SERAFINN, MAED, CPCC is a certified, award-winning coach, teacher, marketer, social media expert, radio host, speaker and author of the number one bestseller The 7 Graces of Marketing — How to Heal Humanity and the Planet by Changing the Way We Sell and Tweep-e-licious! 158 Twitter Tips & Strategies for Writers, Social Entrepreneurs & Changemakers Who Want to Market their Business Ethically. She is listed in the Top 20 of the Top Marketing Authors on Twitter by Social Media Magazine and was a finalist for the prestigious Brit Writers Awards. She also received the eLit Book Awards Silver Medal in Humanitarian and Ecological Social Affairs, as well as the Bronze Medal in Business and Sales. Lynn’s eclectic approach to marketing incorporates her vast professional experience in the music industry and the educational sector along with more than two decades of study and practice of the spirituality of India. Her innovative marketing campaigns have produced a long list of bestselling non-fiction authors through her company Spirit Authors.
Lynn is also the Founder of the 7 Graces Project CIC, a not-for-profit social enterprise created to train, support, mentor and inspire independent business owners to market their business ethically, serve society and planet, and restore all that is best about humanity.
(not just for Londoners, as we meet also on Skype)