Contractors' Questions: How to get paid if the client has been taken ill?

Contractor’s Question: I’ve been chasing payment from one of my Plan B’s first customers for three weeks now. My ‘late payment’ notification emails have been ignored. But yesterday, the client’s PA left me a voicemail saying the client has been rushed to hospital. I’m short of cash that I need to enable the second stage of my Plan B, so what’s the best way to get my money while bearing in mind that the client is apparently seriously ill?

Expert’s Answer: It is always a tricky situation when you find out a client with an unpaid invoice is ill or unavailable for an extended period.  As a micro-business you will no doubt be heavily reliant on the relationships you have built with your clients so you won’t want to appear insensitive and potentially prejudice repeat business. But by the same token, you can’t simply just roll over and wait for payment at an unspecified point in the future.

It will come as no surprise to you that these types of situations are exceedingly common. You don’t say what type of structure your customer is using. With a sole trader, it can often be the case that if the owner / operator is unavailable, the business will cease to trade in any practical way. In our experience, sole traders will be responsible for every aspect of the business with only minimal outside support so any interruption is likely to be significant.

Limited companies should theoretically be less prone to these kinds of business interruptions, as technically the company exists in isolation to its owners and officers.  But many smaller companies will face similar difficulties in operating without key personnel and these can be exacerbated if the owner keeps a tight rein on the business purse strings as the staff remaining may have little or no access to payment facilities.

But in this case, we wonder if your client is being genuine or if they are simply trying to delay your payment even more?

Now, if you had been chasing this client and they had been in regular contact with you, we would probably advise you to give this client the benefit of the doubt.  These things happen and as stated above, small businesses tend to be disproportionately impacted by unexpected events. But the fact that up until this week your chasing was ignored would lead us to believe that this claim may not be quite as legitimate as it seems. You might want to consider some further investigation before you decide on your next step. 

If the client has social media accounts check them out. If they are being regularly updated it might suggest that all is not as you’ve been told.  Similarly, if someone else calls the office and asks, what if anything are they told about the owner? We once had a client that was told the MD had died, only for a new member of the sales team to call the next day and be put straight through to the allegedly deceased director!

If the client is being dishonest then, in our view, they are a ‘high risk’ for non-payment and you should treat them as such. Speak to the person that rang you; express your sympathies and offer any support you can, but push firmly for payment by a specified cut-off point. If that point is subsequently reached, be prepared to escalate your claim.

If you have confirmed or genuinely believe the client is indisposed then you will need to tread carefully, but still pursue payment. Again we would recommend you start by expressing your sympathy and ascertaining if you can do anything to assist (that doesn’t involve you increasing your current financial risk), and try to find out what they plan to counter the disruption in the short term. A further credit extension is probable, but you should carefully consider any options they may suggest in relation to payment.  If they have no suggestions, then you will need to offer some of your own.

Do you already have the facility to accept full or partial payment using a debit or credit card online? If you don’t, a number of services exist that would allow you to start doing so in short order - the obvious contenders would be PayPal and SagePay,  But you might also consider one of the new challengers such as Zapper or Paym.  Most offer a relatively quick set-up time and once in place, your client can pay online at anytime.

If an online payment isn’t an option, then can anyone at the clients make bank transfers or access the bank accounts?  PAs often have the ability to make small purchases or withdraw limited amounts of cash. If this is the case, you could try and secure small regular payments by bank transfer, direct deposit or even by visiting the client’s premises to collect the cash.

You may find that you get told that no one apart from the principal has access to the money, but in most cases this is unlikely to be completely true. Staff expect to be paid as do priority creditors, so chances are some leeway exists that you can leverage to secure full or partial payment in the interim.

Finally, it is worth remembering that every payment you receive helps reduce your risk and improves your cashflow. Keep this in mind at all times and don’t be adverse to accepting small but regular payments if that is genuinely all the client can manage.

The expert was Adam Home of debt recovery specialists Safe Collections.

Monday 6th July 2015