Small businesses struggle to balance relationships with billing

vbridges@newsobserver.comAugust 5, 2013 

  • Collecting payment from customers

    •  Don’t wait until an invoice or statement has been sent to plan how to collect payment. Start at the beginning of the business relationship.

    •  Make sure that credit payment terms are stated up front. Incorporate incentives and fines and include terms such as: “payment due seven days from the date of the invoice;” “two percent discount if paid within 10 days” and “late charges added after 30 days.”

    •  Don’t allow a bill or invoice to go unpaid for 30 days without active follow-up. Asking for payment is a necessary skill for maintaining a solvent and healthy business.

    Source: National Federation of Independent Business,

— John Szymankiewicz is amazed at how often people don’t want to pay their attorney because it seems like the one person they would want in their corner.

“How often do my clients not want to pay me?” said Szymankiewicz, a downtown Raleigh attorney who mainly serves small businesses. “Pretty often.”

Some small-business owners shame their customers into paying their bills by posting bad checks by the cash register or by not returning a repaired item until the bill is covered.

However, some business owners have to take a more delicate approach, and ask for money while trying to maintain a business relationship. And if the problem elevates, owners have to consider whether it is worth chasing down the money or taking a loss.

There are steps small-business owners can take to increase their chances of collecting payment, Szymankiewicz and others said.

One of the most important tools for businesses engaging in transactions worth $500 or more is a contract outlining the provided materials and services, Szymankiewicz said. The contract should also outline a payment schedule, which could be based on a series of benchmarks to reduce risks.

The business could require a down payment to cover materials and require additional payments at certain points of the project.

“My counsel about the contract is it makes that fight a lot easier if you have to go to court,” Szymankiewicz said.

Some small-business owners may have the opportunity to mitigate their risk by targeting customers with good credit standing or performing pre-qualification evaluations, but not everyone has that luxury.

Many people start a business, and have to take the customers that walk in their door, Szymankiewicz said.

Stay atop paperwork

Cindy Schulz, owner of Schulz Iron Works in Raleigh and president of the American Subcontractors Association of the Carolinas, said staying on top of paperwork is key to obtaining a timely payment from a general contractor.

In many cases, Schulz Iron Works doesn’t receive payment until after a general contractor has sent the final bill to the primary client, which can be months after services are performed.

To prevent further delays, Schulz recommends sending the invoice as outlined in the agreement contract and following up to ensure the right person received it. Also, Schulz makes sure all forms were completed properly and checks to see if there are concerns about the bill.

If those actions don’t result in a payment, then a phone call needs to be made to the client.

“Try to follow up on whatever you consider to be a regular reasonable basis to find out when you can expect your payment,” Schulz said. “And if you have not received your payment by the date, call back and find out what is going on.”

Schulz said she turns to legal action as a last resort.

“I prefer to try to work it out between ourselves and our customers whenever possible,” she said.

Szymankiewicz said if a payment isn’t going to be received, the owner should find out whether the client has a problem with the service, or if they don’t have the money. If it is the former, mediation could resolve the problem, he said. Payment plans could solve the latter.

“The last thing you want to do is go to court,” he said. “Court is going to take time and up-front investment.”

If a business has the resources to pay but is taking advantage of the small business, a letter from an attorney is the best way to get their attention, Szymankiewicz said.

Small claims court, which has the authority to award up to $10,000-an increase from the previous maximum of $5,000-is the easiest and most affordable legal route, he said.

The process involves a $96 fee and is generally resolved within 60 days, Szymankiewicz said. If the case escalates to district or superior court, owners risk spending thousands of dollars on a process that could take years.

“I talk to a lot of clients who think going to court is a sure thing,” Szymankiewicz said. “It is not.”

Once you have a judgment, then you try to collect, which could cost more money if the client won’t or can’t pay for any reason.

Legal avenues

There are two types of legal avenues when it comes to collection for construction jobs, said Brian Schoolman, an attorney with the Safran Law Offices in Raleigh. There is the basic contract claim, which is available in any business collection situation. There is also a secured lien claim, which Schoolman describes as pulling out “a fairly big gun.”

“So you have to determine whether it is worth it in the relationship between you and whomever you contracted with, to go to that point,” he said.

In private construction, a lien claim is a right that attaches to the land when a contractor or a supplier furnishes labor, materials or services for the improvement of that real property.

A valid lien claim can result in foreclosure on the property, which would be sold to obtain proceeds to pay the claim, Schoolman said.

Owners have 120 days from the date of last furnishing on the land to file a lien claim and 180 days from the last furnishing to sue to enforce that claim.

Owners who start complaining earlier and are willing to exercise their rights earlier are more likely to get paid for a variety of reasons, Schoolman said.

“The ones who wait longer and are who are less willing to rock the boat so to speak, when they get to the end of the job or after the job and the contracts above them have already been paid out, there is just less to reach for,” Schoolman said.

Bridges: 919-829-8917

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