By Matt Crouch, principal, Matt Crouch Legal
Having customers and clients engaging you to supply your goods or services is great and getting paid for your work is even better, says Matt Crouch, who provides some advice on ensuring you get what you’re owed.
Leaving aside job satisfaction and related, important work benefits, business is, ultimately, an economic equation: it costs you to perform your services, so you need to be sure that you will be paid for them!
Back in the good ol’ days, if you didn’t pay your debts, you could be sent to gaol, but debtors’ prison was abolished long ago…
In recent months, I have had a spate of clients contacting me for advice on recovering overdue debts. It seems to be rife in the events sector. I guess that nice, friendly people engaged in a form of hospitality is a formula for a psychological aversion to being firm on credit control.
Here are some of the basic principles that you should apply to ensuring that you get paid:
- Invoice regularly in accordance with your client contract and do not delay them.
- Ensure that your invoices are properly addressed and sent to the correct person at your client’s business.
- Ensure that invoices properly describe the subject matter/work of the invoice and attach all evidence required for expenses.
- Does your client contract clearly state:
- How your fees will be calculated?
- What expenses you can claim for reimbursement?
- When you can submit invoices (often overlooked) and any pre-requisites for getting paid – certificates, sign-offs, completion of milestones?
- When the client must pay – 7, 14 or 30 days – or longer (not ideal)?
- Your right to stop work, charge interest and terminate the contract if fees are not paid when due?
- A disputed invoice procedure and the client’s obligation to pay undisputed parts of an invoice?
- Be firm and enforce your well-written contract. You don’t have to be aggressive, just firm.
- Most importantly, do not do further work for clients that have not paid past invoices without a valid reason. I see this happen a lot. There is something in human nature that means we like to be busy and feel needed by our clients – but doing work that you may not get paid for makes no sense at all.
- If you have provided the services as requested, there is no excuse for failure to pay. Clients who delay payment (some companies do this deliberately) are using you as their bank. Instead of diminishing their bank savings or borrowing on their overdraft, they delay paying you. They are getting a significant interest benefit; you on the other hand are not getting the interest you should be getting on those funds.
- Keep open the lines of communication with slow or non-payers. A pattern often emerges! First the client is slow, but eventually pays, then a debt becomes well overdue. In the final phase, the client starts avoiding your phone calls and does not reply to emails.
- Remember that if your client is in fact insolvent, ie, it cannot pay its debts when due, the client may be headed for external insolvency administration and ultimately, winding up. Payments made to your business in preference to other creditors of the client may be clawed back by the liquidator as a “preference” – so recognise the signs and stop getting further behind the eight ball.
- Taking court action to recover a debt is often an expensive exercise and deeply dissatisfying. Even if you get a judgement in your favour, enforcing it is a separate legal exercise and cost and the debtor may have no funds anyway. Prevention is better than cure!
- A process exists under the Corporations Act to deem a company insolvent and vulnerable to a winding up order if it does not pay an undisputed debt within 21 days of a statutory demand in the proper form. The courts do not like this being used for debt recovery and, by the time such a demand is issued, the client is often actually insolvent (see above).
When an economy slows there can be a domino effect throughout the sector. If your clients do not pay you, you may be unable to pay your bills and, so, on it goes so that numerous businesses are affected. The saying “6 degrees of separation” is an overstatement where the events sector is concerned; it’s more like “two degrees”!
Maybe we should re-introduce debtors’ prison? I am joking, of course, but I have clients with big debts owed and unpaid who feel so cheated and disillusioned that they would vote for its return in a heart-beat!