FORTUNE Small Business:

How to avoid deadbeat clients

Consistent problems getting paid may indicate deeper problems in your business model.

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Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
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(FORTUNE Small Business) -- Dear FSB: I am a management consultant and I write business plans for small-business owners. I currently charge a flat fee for this service, requiring 40% up front and 60% upon completion. I have experienced some difficulty with collecting the second payment. What advice can you give on how to eliminate this problem?

- Paula Williams, Jacksonville, Fla.

Dear Paula: Only college students should be forced to write business plans without pay. Your predicament may require either minor adjustments or more fundamental changes.

John Vautier, president of Vautier Communications, an Arlington Heights, Ill. sales consultancy, offered two options for the former:

1. Keep the 40/60 fee split, but require the 40% up front and only provide an outline of the business plan. The client can then accept or sign-off on the outline and pay the remaining 60%, after which the full plan changes hands.

2. Bill 75% to 80% up front, write the plan and deliver it to the client, and then bill the remaining 20% to 25%.

"The advantage here is that you get the majority of the payment up front, and the remaining fee is much less than the 60% you were originally invoicing on the back-end and having difficulty collecting," Vautier says.

But your business problems may run deeper than a pay and delivery schedule, according to Jeffrey Davis, founder of Mage LLC, a Mass.-based small-business consultancy. The source of trouble could lie either in your clients - or in you.

"If he's making the deliverable and [the client] isn't paying, he's not qualifying his clients properly," Davis says. "If he's qualified them properly on the deliverable and who they are, and they're not paying, it's because he's not delivering what he said he would. It's either one or the other."

Selecting the right clients and making sure they understand what they're getting can make a world of difference. Davis recommends that before starting a project you should know all of the following:

1. Is the potential customer a bona-fide client? (Can they and are they willing to pay? Do they have a legitimate need to commission a business plan?)

2. Have you properly defined the deliverable, and has the client reviewed and agreed to the plan? Has the client seen and signed off on samples of your work? Are you sure they know what they are getting and have agreed to it?

3. Are you doing the work properly?

4. Do you have a tight enough contract with the client?

As with any relationship, you should know what you're getting into and have the agreements and expectations spelled out ahead of time.

"It's like a marriage. Don't go in with your eyes closed," Davis says.

Tom Minter, sales director of Florida printing company Magnolia Press, likes to set the payment schedule in advance, agree to that arrangement and follow it. Under a 40/60 pay plan, the client can review the product when it's done and must write a check for the remaining 60% of the payment before getting the document. This should be all established contractually beforehand.

Minter won't do business with someone who balks at the payment set-up.

"You are doing a service that you expect payment for," Minter says. "If your client doesn't feel you are capable of delivering the service to him, he should look for someone else." To top of page

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