Consultants Cope with Slow-Pay and No-Pay Clients

By By Lin Grensing-Pophal, SPHR Sep 2, 2009

HR consultants must be jacks of all trades, handling the consulting and administrative aspects of their work. One very important administrative aspect of consulting is ensuring prompt payment. Clients that are slow to pay—or that don’t pay—can have an obvious negative impact on the bottom line. During a tight economy, in particular, consultants need to ensure a steady revenue stream. Unfortunately, a tight economy can have an impact on how quickly clients turn around invoices.

“Collections are the name of the game,” says Rebecca Staton-Reinstein, Ph.D., president of Advantage Leadership, Inc., in North Miami Beach, Fla. “If you’re a sole practitioner and don’t have an assistant, then you must take this job on yourself,” she says.

“It’s definitely very frustrating for small business owners who have invested time and money into providing a service and then, when they go to bill for that service, don’t receive the funds,” says Ryan Neuweg, founder and CEO of CollectionTree, an Internet-based company that helps small and medium-sized businesses through the collection process, from selecting a collection agency to tracking payments. Fortunately, say Neuweg and others, there are steps that HR consultants can take to minimize the likelihood that clients will be slow- or no-pay.

There are some commonly used best practices that consultants have found work well to manage bad accounts proactively.

Put It in the Contract

Richard Deems, president of WorkLife Design, with offices in Arizona, Iowa and Illinois, says payment issues should be addressed at the point the project is agreed upon.Only once in 25 years has Deems dealt with a company that didn’t pay, he says. The company was in the process of going bankrupt when the project was done. But, he says: “Because we knew the COO, we thought we would get our money. We didn’t. Our mistake.”

Staton-Reinstein says that payment terms should be included in the contract or letter of agreement. “Prepare clients for the fact that you will be asking for payment on time,” she says. Depending on the size of the contract, she suggests, HR consultants might wish to set up early payment discounts and/or late payment penalties.

Tom Dailey, an organization development consultant and principle of Tom Dailey Consulting in Chicago, agrees and cautions against handshake agreements. “Make sure you have an iron-clad engagement letter or contract specifying services to be rendered and fees,” says Dailey. “No handshake deals—regardless of how cozy your relationship may be with the client.”

Get Payment Up Front

Another common practice among consultants is charging a portion—or all—of the project fee before work begins.

“Request an up-front retainer payment against which you can apply your billings,” says Dailey. “Fifty percent of anticipated billings is a reasonable amount. At the end of the project you can then settle up by charging the client any overages or returning any surplus.”

Barry Zweibel, an executive coach with GottaGettaCoach!, says: “After spending more time than I cared to worrying about—and dunning for—unpaid invoices, I opened a merchant account and now take payment, in advance, by credit card.” This has virtually eliminated receivables, he says. “One of the best business decisions I’ve ever made.”

Debra Condren, Ph.D., a business coach and author of Ambition Is Not a Dirty Word (Broadway, 2008), agrees. “You’d be amazed how many otherwise sophisticated small business owners and consultants don’t even know that this is an easy option or have never considered setting up an account,” she says.

Communicate—and Keep Communicating

While collections is not likely to be high on most HR consultants’ lists of favorite things to do, Neuweg stresses the importance of “staying on top of” receivables. “Make sure you’re communicating with your customers and making sure nothing is disputed,” he says. “When disputes do come up you need to handle them proactively rather than reactively,” he notes.

As soon as the payment is overdue, a call should be made, says Staton-Reinstein. “Be friendly, but firm. If you are dealing with the financial people, once it has gone beyond a few days, contact the principal or your client,” she suggests. Persistance is key, she says. “Most people will pay rather than deal with the pain of your annoying, but pleasant, persistence,” she says.

Turn Up the Heat

If it begins to look like you are facing a no-payment situation, Staton-Reinstein suggests turning up the heat by sending a demand letter. “Be civil, but letting them know you expect payment,” she says. In addition, she suggests, if there is a board, distribute a letter to them, outlining the issue.

There are several steps that an HR consultant should take before intervening with a collection agency or taking a client to court, says Murat Philippe, principal consultant at HR Solutions in Chicago. “Once these types of actions are taken, there is little that can be done to repair the client-vendor relationship,” he notes. Consequently, he recommends considering elevating the issue to that level only “when communications have irretrievably broken down and you decide that the bottom line is more important than nurturing an ongoing relationship.”

But, at some point, HR consultants might find that they need to look for outside assistance.Neuweg says that the industry standard for writing off bad accounts is six months. That’s the point at which many small businesses will turn to a collection agency for help.

When looking for a collection agency, Neuweg says, HR consultants should make sure the agency is licensed, bonded and in good standing with the Better Business Bureau. In addition, he suggests, it is a good idea to review their state licensure and check with state attorneys general to make sure they are in compliance with all legal requirements.

The standard form of payment is a percentage of fees collected—after they are collected. Rates will vary depending on the agency, but if the account is less than 90 days overdue, expect to pay around 20 percent; after a year about 40 to 50 percent, says Neuweg.

Staton-Reinstein prefers small claims court to collection agencies. “Collection agencies will take a chunk of the outstanding money and may use tactics you do not approve,” she cautions. Small claims court is a better alternative.”

When all else fails, bring up the specter of the IRS, suggests Dwayne Briscoe, who operates a bookkeeping business.“Should the client fail to pay, I remind them that if I write it off as a bad debt, I will file a 1099-C with the IRS, which is never a good red flag that anyone wants to see.”

Walk Away

Some clients are simply not worth the hassle, says David Couper, a career coach who says HR consultants should be willing to walk away from a client. “If you are wasting time and energy on a bad payer, you are wasting valuable time you could be marketing or working with a good payer,” he says. Couper has walked away from a client that never paid on time. “It was too much anxiety and stress to have to keep calling to find out where the money was,” he says. “Once I gave up with them I got some much better work which paid more and on time.”

Fortunately, says Staton-Reinstein: “Most people pay with a little pressure. In 14 years in business I have only been stiffed twice.”

Lin Grensing-Pophal, SPHR, is a Wisconsin-based business journalist with HR consulting experience in employee communication, training and management issues.


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