Do you always pay your bills?

[Azure]

Apparently the accounts receivable is a huge problem for thousands of small businesses in Canada.

I'll give an example of how it can happen in my industry. Customer purchases kitchen cabinets. Everything is according to spec except for a few small issues, which take some time to be resolved. When they are resolved customer just conveniently doesn't pay the outstanding amount on their bill despite repeated efforts to get them to do so.

When pushed to pay their bill, they respond saying it took too long to fix the issues and they refuse to pay whatever is owed.

Obviously a company with better customer service will be able to minimize the issues and be on top of collecting payment, but the issue is still there, even if not as large.

How do you deal with this? And as a customer, is it right to just refuse to pay?

A lot of times a small business will not have the resources available to legally go after someone. Small claims court can also be a PITA.

IMO, as long as the work is completed as originally agreed upon, you are obligated to pay your bill. Asking for a discount because of certain issues is understandable, but if the company doesn't give it, that doesn't mean you can just not pay the bill. If you don't like how the work was handled, don't recommend the company to anyone else. If it is bad enough they won't stay afloat long.

[worth]

All I could suggest is you try to get them to sign something. If there are a few items that are missing, get them to sign a sheet that identified what the issues are, that you will fix the, by x date, and that is when the remainder of payment is due.

Tell them that because there are issues with the product, you have to open a new work order which means filling out a new sheet with their concerns and that they will pay the remainder when the agreed upon issues are solved.

Items need to be clearly definable. There can be no wishy washy language. It need to be crystal clear to everyone that this is what you will do, and after that is complete, the remainder of payment is required immediately.

I have issues with clients coming in and requesting changes on the fly. We write them down and account for them and then when it comes time to pay the bill, they balk and say that they didn't actually want any of that stuff.

We have designed a form that the client is to sign off on when they make the request and it has been useful in minimizing off the cuff changes by people that aren't authorized to, but also legitimize the changes being made by the client because they are signing and agreeing to the work.

Slightly different than your situation, but the same principal could be applied.

[Azure]

Even with a signature - which we already get - it still requires us to take legal action of some kind.

Most of the people that owe us money have no reason not to pay. The job has been finished as per the agreement. Our problem is having to pursue every single case legally in order to get our money.

Obviously a step in the right direction would be to get a downpayment - which we do - and then another 40% upon delivery of the job, which we try. But that still leaves money outstanding, and I swear people take advantage of the fact that small businesses tend to have problems with collecting outstanding money.

[GGG]

I usually will with hold 10% for outstanding work until its completed. I also put an excessive amount of things in writing to clarify things before having any work started and a statement that all changes need to be in writing signed by both parties with costs associated. Doing this has resolved most issues I have with contractors.

I think that peoples fear with paying before everything is done is that the contractor would just take off and not finish the last details. Do the people who arent paying identify reasons or do they just ignore you.

[photon]

One lawyer told me their success rate for collecting from deadbeat tenants was in the single digit percent range, I can't imagine that would be much different.

I thought there was someone you could sell the uncollected debts to, might only get cents on the dollar but that's better than nothing.

What about doing some filtering of potential customers? Doing a credit check or something like that?

Or maybe this kind of industry needs a customer rating website, I've seen them for contractors, have them for customers so you can look up a customer and see if they've been bad (that's probably so fraught with issues to be worthless though).

What about some kind of escrow service, so the money goes into a 3rd party's hands?

[drPepper1]

If know any laywers, have them call the customer and give em a scare. Next day they'll have the payment in full.

or

You can go 1920's on them send some lackies to pay them a visit

[CaptainCrunch]

Sell their outstanding balances to a collections agency, black list them in terms of doing business with you.

Eventually this kind of thing will bite that company in the A$$.

[MoneyGuy]

I always pay my bills, and generally add a 15% tip.

[undercoverbrother]

From your post it seems like you do work on people's properties, i am assuming homes.

Could you not put a lien on the house in the amount outstanding? While this does not put money in your hand, it does give you something of a hammer. My simple understanding is that they won't be able to sell the property while there is a lien.


That's'all i got.

[Barnes]

Originally Posted by MoneyGuy

I always pay my bills, and generally add a 15% tip.

Do you typically receive the extra sides of ranch you asked for?

[Rathji]

Originally Posted by undercoverbrother

From your post it seems like you do work on people's properties, i am assuming homes.

Could you not put a lien on the house in the amount outstanding? While this does not put money in your hand, it does give you something of a hammer. My simple understanding is that they won't be able to sell the property while there is a lien.


That's'all i got.

They could, but that requires a judgement.

I always do my best to pay my bills in a timely fashion. Sometimes life throws me a curve ball which messes the timely part of that up. I would never go to someone and ask them to do work which I couldn't afford, or didn't intend to pay for, though.

[GP_Matt]

You need a judgement to file a lien but you can file a certificate of Lis pendens without the judgement.
It is a document indivating pending legislation and is registered against the property that you performed the work for.
They are unable to sell their house while it exists without putting up a bond against the potential settlement and you have a certain amount of time to initiate legal proceedings.

It would probably do a great job to scare the occupant and you might be able to get a settlement that way.

Disclaimer that I am not a lawyer and you should probably consult a lawyer about the process.

[I-Hate-Hulse]

It isn't just at the individual level. The corporation I used to work for, a multi billion dollar entity, decided to stretch it's cash in 2008 and introduced a net 50 policy on payables. The policy is still in place, and has certainly made it difficult to deal with vendors as a whole - we were frequently cutoff.

This was applicable to everyone, and caused much grief amongst our vendors. It's one thing to stiff arm other large corporations, but you could certainly see the grief at the small vendor level.

I hate to say it, but the OP should just factor in a delinquent accounts amount, as well as the costs of filing liens into their forecasting & budgeting amount. It's unavoidable I'm afraid.

[SportsJunky]

I forget the percentage right now but a large chunk of small businesses fail in the first five years. A big reason for this is poor AR management. Cash flow is king to small business and if you have a long list of outstanding receivables you likely will push your business into an early death.

Accounts Receivable staff are some of the surliest people you will ever have to deal with and yet they rarely get fired for their horrific people skills. Why? They are usually good at collecting the payments. Do that well and all is forgiven .

[I-Hate-Hulse]

Originally Posted by fotze

Wouldn't want to explain what the Net 50 policy is or anything, that would be too helpful.

You don't get paid for 50 days, instead of the usual 30. People love this.

[nfotiu]

Originally Posted by CaptainCrunch

Sell their outstanding balances to a collections agency, black list them in terms of doing business with you.

Eventually this kind of thing will bite that company in the A$$.

I'd think a threat of going to collection agency and damaging the credit report would be enough to get payment out of a good chunk of people.

There are also two sides to these stories, and I've had my share of home contractors who really drag out the finish of a project. If in your example, you committed to completing the job in 4 weeks, and it dragged out to 3-4 months, and their kitchen was more or less unusable or at least a big mess, I can see the customer being frustrated and wanting to hold out payment until some kind of compromise can be negotiated. I've never done that, but there are definitely times I've wanted to.

[-TC-]

our business is net 30, but we do business with a lot of govt and large corps whose terms are longer than that...we get paid but our receivables do stretch.

[Reaper]

Originally Posted by CaptainCrunch

Sell their outstanding balances to a collections agency, black list them in terms of doing business with you.

Eventually this kind of thing will bite that company in the A$$.

This.

Some people fear black marks on their credit more than jail.

[onetwo_threefour]

Originally Posted by Rathji

They could, but that requires a judgement.

Not true. A lien is filed by registering a Statement of Lien at Land Titles. Judgment happens much later, if at all. In fact, if you file a lien you have up to 180 days to commence your court action and file a CLP from the date you file your lien, (or less if the homeowner serves you with a notice to prove lien).

Just want to clear up any confusion. A lien would be a reasonable course of action for the OP as long as they're prepared to take that step within 45 days of substantially completing the project, after which it's too late. Liens drastically improve your chances of collecting if you happen to be in an industry where you can take advantage of them. (Mostly home contractors, mechanics and lawyers, although mechanics and solicitors liens are possessory rather than registration liens.)

[troutman]

Retainers. $ up front.

A lawyer once said : "I can only worry about one thing at a time. I can worry about your file, or I can worry about getting paid".

We do it. Our IT people do it. Just do it.