11 Collections Tips From a Solopreneur Who Gets Paid 99.92 Percent of the Time

I have been a solopreneur for 17 years. So far I have sent 1,236 invoices. I have collected on every invoice, except one. (I will explain later what happened with that one.) Is 99.92 percent a good collections rate? Hey, I’m happy with it. Have I been doing everything “right” while wearing my collections hat? I don’t know, but this is what has worked for me:

1. Don’t accept work from risky clients. This is by far the most important tip on the list. I think I possess excellent intuition regarding people, but if I had to identify three red flags for a risky client, they would be:

• A person who misses deadlines and offers up flimsy excuses.
• A lavish lifestyle. Clients who live large make me skittish.
• A prospect who receives collection calls while I am in his office. (That really happened.)

If you want to take a chance on Mr. Risky Business but minimize the risk, ask for at least 50 percent of your fee upfront. If he won’t pay, then walk away smiling, confident in the knowledge that you have avoided a lot of headaches.

2. In your contract with the client, include the payment terms and the penalties for nonpayment. This is vital and it’s your hammer in case the client is slow to pay. (Consult legal counsel to make sure your contract language complies with laws in your jurisdiction.)

For 14 years my terms were “Net 30” and I rarely had anyone go past 30 days. Then I ran into a client with an accounts payable department that wanted to play games with the definition of “Net 30.” Their definition had something to do with “Net 30” actually meaning “Net 60”; I never did understand their position. Eventually I got smart and changed my terms on new invoices with that client to “Payable Upon Receipt.” Ever since, the client has paid me within 30 days.

3. If you are invoicing at the completion of a job, send the invoice as soon as you complete the work. I typically create the invoice within 30 minutes of the job’s completion. Invoicing promptly does three things:

• You get paid sooner, everything else being equal.
• You won’t forget to send the invoice.
• It tells the client that you expect to be paid promptly.

4. Send the first overdue notice letter at day 31. This reinforces the client’s notion that you aren’t a soft touch. It also hints that you will be a pain in the arse until you get paid. If your contact at the payee’s company doesn’t deal with accounts payable, then give your contact a heads-up; my experience has been they will serve as your ally and help you get paid.

5. At 45 days, send a certified letter, with stronger language.

6. At 60 days, send another certified letter. This one informs the client that formal collection action will begin after 10 days of the date of the letter, if payment is not received within 10 days.

7. At 70 days, send a lettery via fax (or e-mail). This one informs the client that formal collection action will begin after 10 days of the date of the letter, if payment is not received within 10 days of the letter.

8. At 72 days, send another fax (or e-mail). This one says you will begin a collection action in court, if payment is not received within three business days.

9. At 75 days, send a certified letter and fax. This one includes a copy of the filing you will be making in court, if payment is not received by 3 p.m. the following day.

I have gotten to the 75-day point only one time, and the 75-day notice worked. I received payment in a FedEx package the following morning. Then I dropped everything I was doing and drove quickly to the bank to make the deposit.

10. At 76 days, make your court filing.

11. For my coaching clients—many of whom I do not know very well before the work begins—I require prepayment via PayPal. I love prepayment! It eliminates a lot of hassles.

I promised I would tell you about my one invoice that never was paid. It was in the mid-1990s for a company that manufactured custom golf clubs. The firm’s idea, product and execution were good, but custom golf clubs was an idea that was about 15 years ahead of its time. Sadly, the company filed for bankruptcy and I was left holding the golf bag.