Sunday, April 08, 2007

The Real but Managable Behind the Scenes Side of Design - Bad Debt

Those two words that make your hair stand on end!

Bad Debt.

This is what happens at the end of your job, when you have done all the work, the client has the finished product, a lovely home or new office. Throughout the design and construction time you have been their best friend, held their hand (so to speak) the whole way through the process, answered phone calls at crazy times - thanks modern technology, and literally bent over backwards to make sure they have a top class job and in the most professional way you know how.

Then, you send out your invoice, often at a reduced fee because you undervalue your time and don't think that you can really charge them for all the phone calls and extra hand holding meetings. Here is the first mistake! If you don't charge enough the client will not value your time and expertise. You need to charge at least market rate and don't give anything away, you are only cheating yourself.

Then the client that has been the hotline to your phone for the last few months is now unable to be contacted at home or office, not answering phone calls anywhere, as obviously they have not paid their bill!

Mistake number two, calling them. Give up with this option. Technology now means with caller id they will never pick up the phone. The only way to resolve this is with fast and direct action.

Arrive on their doorstep and don't leave until you get your money. It could take you a few hours, but it is better than losing months worth of time and effort and paying debt collection fees or worse still, lawyers fees....now they certainly know how to charge for their expertise, almost as well as accountants. Now that is another story again! The best place to go is their place of business as you have a greater chance of catching them there and a bigger chance of the embarassment of you sitting there with your invoice in hand waiting at reception for them to come and pay you, this definately helps them pull out the moth eaten check book!

I write this having had to do it a few times, mostly we have wonderful clients who are most grateful for the service we provide, but it only takes one for you to lose months of hard work and mostly your profit for your business, and lets face it we can't do this job for love alone we do need to make a profit!

So let this advice for all you budding designers help you out when you get in a bad patch, don't let invoices go unpaid, the longer you leave it the harder it is to get money from them and you are losing out on the fact that it should be in your bank account!

Tips to reduce this happening:
  • Take a deposit at the beginning of the project.
  • Invoice in progress claims if it is a job over a period of months. If they don't pay as they go, then you can stop the work and that will stimulate them, if it doesn't then you end the relationship without losing months of unpaid work.
  • Allow payment to be made direct to your bank account - reducing the "check's in the mail" line.
  • Ensure that the client pays direct for any subcontractors, ie quantity surveyor, engineer and you don't take on that responsibility.
  • Ensure that anything that is purchased for the client for the project is invoiced direct to them, unless you are adding on a percentage, then that becomes your risk for the extra fee.
  • Ensure that the contractors invoice the client, C/- you so that you can check the costs and ensure that they are correct and then forward the invoice to the client.

Ok. Cashflow show be good now, so go out there and enjoy designing, and keep this in the back of your mind for the one off's that can ruin your day and your cashflow.

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