Here’s a column for the hundreds of thousands of lawyers, accountants, consultants and other professional service providers in Canada who are in private practice –private practice meaning you are in the business of providing services and advice to people who are also in business; you bill for it; and, you expect to get paid for it.
My advice? Your clients don’t work for free. You shouldn’t, either.
Get your accounts receivable under control, and make sure you have no uncollectible accounts in 2011.
Like all good advice, I have to start with a story from my own experience.
Thirty-odd years ago, when I was a waiter at, of all places, The Keg, we had a very simple, but effective, means of collecting money. Customers would be seated in our sections. They would order food, drinks and be royally entertained by our cabal of soon-to-be lawyers, accountants and other professionals, all working for tips as waiters to pay for university.
When our customers had finished their meals and were ready to leave, they would be given a bill. And 99.9 per cent of the time, they would pay that bill, either by cash or credit card. Other than the 0.1 per cent of customers who were “dine and dashers” (who, in those days were sometimes tackled on the street as they sprinted out the back door without paying), our accounts receivable were effectively nil.
It was expected that customers would pay their bills right away. There was no such thing as an “uncollectible account.” You didn’t need a collections department, and you didn’t have to sue customers who tried to avoid paying you. Customers didn’t have a financial meltdown between the moment they ordered their teriyaki sirloin and the time when the bill was delivered. You got paid.
So why is it that when you’re a waiter, you should have no uncollectible accounts, but when you’re a lawyer or an accountant, it’s all a part of doing business?
For most clients, it’s not an issue. But I’ve kicked myself a few times over the past few years when I’ve done work for clients who had absolutely no intention of paying my bill at the time they gave me the work. Using the restaurant metaphor again, they ate the food but never intended to pay for it. I can’t tackle them now as they rush down the emergency exit like I might have 30 years ago as a waiter.
But I can take steps to ensure that I’m paid in the future.
First, I always get an engagement letter signed by the client that explains the services I’m providing, and what I’m not providing, so it’s clear to everyone what the job is, and what it isn’t. The client who signs the engagement letter will often the company, but I’ll often get a guarantee or personal covenant from that company’s primary director and shareholder.
People can always walk away from their small, indebted and insolvent companies when things go bad, which is why banks always obtain personal guarantees. You could learn a thing or two from Canadian banks.
Besides, business is business.
The engagement letter is a legal contract. If a client wants me to draft a tight, enforceable contract that it can use with its own customers, then it shouldn’t have a problem with signing a tight and enforceable contract with me. I’ve always found that contracts written in ink are far easier to enforce than the ones written in air.
Second, I always get a monetary retainer from clients with whom I don’t have a payment history. It’s the norm for my law firm and others across Canada. The retainer isn’t supposed to be the fee, per se, but security for the engagement. I draw down on the retainer to pay the fee. My mistake is not getting a replenishment of the retainer if the work goes over the amount of the initial retainer. For ongoing work, it often will.
I pay for most things with Visa or MasterCard just for the frequent flyer points I get. Clients who use credit cards to fund retainers get the points, too. So when you ask for a retainer, make it convenient for the client by taking Visa or MasterCard.
Third, manage expectations. I won’t give quotes, but I will give realistic estimates because I have a good sense of what the range of fees will be for the kind of work I do. I live within these ranges. If a client thinks my estimate is too high, or they can’t afford me, I’ll give them a couple of other names and they can shop around. But I always let the client know that it’s only an estimate, and, if something unexpected is discovered or happens, the original estimate will have to be revised.
Part of managing expectations is communicating with clients as the work progresses, and keeping them up to date on the state of the accounts. Billing monthly is one way of doing this, although it’s sometimes difficult in project-based work that’s more appropriately billed at distinct stages of the project, rather than on the last day of the month.
When a bill is high, call the client and discuss it. You might find explaining the account (and, if appropriate, shaving a bit off the top before the bill goes out) keeps the client involved in the decision-making, and happy.
Fourth, deliver. Do good work, on time and on budget. If you want to keep the client happy – and, in doing so, keep the client – nothing works better than good work.
Fifth, build a good working relationship. If the client has a problem with paying you, it may be that he or she is waiting to be paid by someone else and the two of you can come up with a workable payment plan that deals with seasonal businesses or the normal ups and downs of cash flow. When there’s a good professional and personal relationship, clients will try to ensure that you’re paid.
Sixth, (and this is the hard part), don’t do any further work if the client is behind on paying the accounts and you don’t have an alternative payment arrangement. If clients really want the work to be done, they’ll pay your accounts.
But a client can’t expect you to keep working on a project (or take on new work) if it’s 60 or 90 days overdue on accounts with you. You’re not a bank. If you continue to work for a client who is way overdue, or is not paying you at all, you aren’t doing anyone any favours by doing further work. You may be digging yourself into one of those uncollectible holes, where you are working even harder, for free.
Your clients don’t work for free. You shouldn’t, either. Remember, if you don’t have a mortgage to pay, RRSPs to save for or kids to raise, you will soon enough. You need to get paid. Otherwise, do something else with your time.
Seventh, if you’re the one in charge and employ others to provide services and bill clients under their own name at your firm, pay a hefty part of their compensation (a performance bonus) on a cash-in basis. If they don’t hit the pre-agreed cash-in target by the stroke of midnight on Dec. 31, they don’t get the bonus.
This may well instill a sense of financial responsibility among your professional employees, who will find out (the hard way) that, if they don’t get their files billed and collected by the target date, they won’t get paid the bonus.
As well, pay them an additional bonus for work they bring in and spin to others in the firm. If they stand to benefit from what they spin to others, they’ll make sure the people they send work to will bill it and collect it.
Last, remember that, if you’re in private practice, you’re in business. It doesn’t matter whether you’re in a small firm or a large one. Someone has to pay the rent and utilities, the salaries of all the employees (including yours), the professional insurance, the marketing and all the other costs that go along with being in business.
It’s not a charity, last I heard. If you don’t collect money for what you do, you won’t be in business very long.
Special to the Globe and Mail
Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.Report Typo/Error
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