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Sooner or later, someone doesn't pay and we have to collect our money. I learned this in the construction business the hard way: Always stay ahead of your customer-have them pay in stages, and agree to that in advance.  I used a schedule of 1/3 down, 1/3 at a specified milestone in the progress, and 1/3 on completion. 
Usually, bad debts result because there wasn't a clear understanding up front about what was going to be done, and/or what it would cost. Lawyers are a case in point. They often carry huge accounts receivable, because they undertake assignments, rack up billable time and charges, and then surprise their clients with costly invoices. The clients get mad and refuse to pay. Multiply that times 10, 20, or 30, and you have a serious receivables problem.

Be certain that you and your client are clear about what you've agreed to.  And that you've agreed to anything at all.

It's easy for beginning consultants to think they have a client when they don't. It's easy to assume the customer has given her approval to begin, when she hasn't. Therefore, be very clear about engagements. "Are you ready to begin, and are you okay with my fees?" is not a bad question.

Let's say you've agreed to a $1500 fee for project, but soon realize it's going to be more.  In most cases, that's too bad for you. I never go back to a client and ask for more money mid-way through a project.

If I am unclear about prices, I say so, and undertake the project in stages, so that fees can be discussed every step of the way. Finally, if I am unsure of a client's creditworthiness—or if the project is small, say under $1000—I'll ask for a credit card number up front. A cash practice removes the collection issue entirely.

Last of all, "Get it in writing." You've heard that a million times, in every business book, in every business class. But it's true. Writing your agreement clarifies the project in everyone's mind. You don't necessarily need a formal contract. A letter of understanding or signed proposal may be sufficient. That's what I use. (See the Proposals Section.)

But ask your lawyer what you should do before you make any agreements. It's cheap insurance.

Now, if you can't get your money, here's what you do. Try the least forceful techniques first. Another way of saying it: "Don't use a sledgehammer to kill an ant." Always assume your customers want to pay you-because they do. And remember that you want to retain their business and their friendship after the collection crisis has passed.
  1. Call the customer to see if they received your invoice. Amazingly, many times they haven't. If they didn't receive your bill, offer to send another. Explain that they should have received it 30 days ago, and ask if they can speed payment accordingly.
  2. Many times, it's better to work with your client's accounting department than with the client. Bookkeepers and accountants are used to billing inquiries, and they can give you factual answers about the status of payment. (Unless, of course, they have been instructed to be deceptive. That's another matter.) Ask your client: "Shall I work with your accounting group on this—and who should I call?" The client may breathe a sigh of relief not to be troubled by the details of payment.
  3. If you can't get paid, explain that your work can't continue. Be pleasant and informative, not threatening: "Mike, I'd like to complete this hiring project by your deadline, but I can't continue without a progress payment. Can you afford to pay part of what you owe me?" If the project is important, your customer will certainly want to keep you on the job.
  4. Stop work if you aren't getting paid. I know this is hard-you like the customer, you like the project, and you like to think you're gainfully employed—but this self-deception can result in a $20,000-$150,000 bad debt that will never be paid. It's happened to well-meaning consultants, though fortunately never to me.
  5. Employ a series of increasingly tough collection letters, beginning with "I'm sure you intend to pay, "and ending with appropriate threats of legal action, resignation from committees, etc.
  6. I personally don't threaten legal action, because that usually results in the well known, "Go ahead, sue me." Lawsuits are costly and the outcome is uncertain. Even if you get a court judgment, you still may not get paid.
  7. I try to find the leverage I call "hitting them with a bigger hammer." What bad consequence would they dislike enough to pay? For example, if Susan's friend John referred her to me, I might say, "Susan, I can't seem to get you to pay me, I may need to enlist John's help to resolve this." The threat of embarrassment may spring a check. In my experience, there's always something bad the client wouldn't like to happen. It isn't a lawsuit, but it could be more troubling. This is called "leverage." An executive suite once refused to refund my deposit when my lease ended. I was planning to send a letter to all their tenants explaining the landlord's actions, when my check suddenly appeared.
  8. Asking repeatedly also works wonders. I wouldn't call someone daily, but regularly. And always, in a friendly manner. Yelling or resorting to threats is counterproductive in a professional services business. Remember, even if your client is at fault, you don't want them spreading bad press about you: "I was a month behind in my payments, and this guy acted like the Mafia." Take the softest possible approach.
  9. Last resort: try a commercial collection agency. I once had a $20,000 debt I couldn't collect. Increasingly hostile letters didn't work. The client was President of the Hispanic Chamber of Commerce, and I threatened to embarrass him in front of the chamber (not a good idea). Finally, I gave up on the account—something I had never done before. Six months later, my office manager suggested using a commercial collection agent. Threatening a lawsuit—he was going to front the costs—and talking to the client in a businesslike way, the agent collected the entire $20,000 in $1,500 installments. I paid $10,000 to the agent and kept $10,000. Not a bad deal for an account I had written off.
  10. The best way to collect delinquent accounts is not to create them in the first place. Be sure your deliverables, terms and conditions are clear upfront. Always have clearly written, signed agreements.  Collect some of your money in advance, especially on large projects—and you'll seldom be making collection calls.


William S. Frank, M.A.,
25 Reasons I love consulting.
by William S. Frank
  1. Brand. You are your own brand, and you can define it any way you want. For many years, I provided outplacement to the ex-employees of Schlumberger, the world's largest oilfield service corporation. When departing employees left the company, they didn't request outplacement in their severance package. They said, "I want Bill Frank."
  2. Demand. The world will always be full of terrible problems that need solving.
  3. White Hat. I can be a helper and get paid for it.
  4. Pay. I can be paid to do things I'd gladly do for nothing.
  5. Variety. Every day is different.
  6. Happiness. At this stage of my career, I only work for people I respect and care about. If a client micromanages me or is otherwise no fun, I complete the assignment and replace them.
  7. Talent. I'm using 110% of my talents and stretching myself to the max.
  8. Change. I can change my focus any day I want. If you're a McDonald's franchisee, you don't say, "Hey, I've got this great idea for a meatball sandwich—let's try it out today." In consulting you can adjust your focus hour-by-hour, as long as your clients still understand and appreciate what you do.
  9. Income. No one else would pay me as much as I pay myself.
  10. FUN. I can't think of anything I'd rather be doing.
  11. Retirement. I can write and consult as long as I am physically and mentally capable. Peter Drucker worked into his 90s, and when asked which book was his best, he said: "My next one."
  12. Job Security. Although clients come and go, no one can come into my office and say, "Pack up your stuff . . . You don't work here anymore." In 29 years, I've only had one employer: ME.
  13. Travel. I don't have to travel unless I decide to. I travel if it's both FUN and profitable—or at least FUN.
  14. Commute. I live five minutes from my office, a corner office in an upscale six-story tower. In winter, I leave a heated garage at home and drive to an underground heated garage at work. There's seldom time to hear even one song on the radio.
  15. Vacation. Consulting is more fun than vacation (except on Wailea Beach in Maui).
  16. Friends. I have developed hundreds of close acquaintances and several lifetime friends.
  17. Time. I can work as much or as little as I like: four-hour days or 18-hour days. (Of course, my income will reflect that.)
  18. Employees. I can work with employees, subcontractors, partners, or alone—I've done it all.
  19. Passive Income. I've developed several products that provide "mailbox money." I earn while I'm sleeping.
  20. Ethics. I've never had to violate my values or personal code of ethics. I've never had to lie, purposely deceive or harm others, or promise things I can't deliver. I go to bed with a clear conscience. That doesn't mean there's never any conflict. But the conflict is conducted according to generally accepted business practices.
  21. Virtual. My career is fairly portable. With the Internet, e-mail, cell phone, and FedEx, I can work nationally, even internationally from my office—or anywhere in the world.
  22. Purpose. I make a difference in peoples' lives every day. I see it in their faces, hear it in their voices, and read it in their thank-yous.
  23. Experience. Every painful or joyful life experience makes me a better consultant. So does every person I meet or book I read. Grey hair can be good in consulting.
  24. Structure. I have to work very hard, and the clients expect superb results—but I get to structure my days, weeks, months, and years.
  25. Boss. Most of the time, I love my boss.
As I was posting these letters online, I realized I want to communicate my love for consulting. It's just a great business. The single letters, taken together, may create a picture of enjoyment, but in a burst of creativity I listed some of the reasons consulting is such a good fit for me—and perhaps for you, too. They are not prioritized; this is just how they came out.