COLLECT YOURSELF

HOW TO EXTRACT MONEY FROM TIGHT-FISTED CLIENTS

The check wasnt in the mail. Your client said, Mail me an invoice, and Ill pay you before the months out, and here it is, 47 stomach-churning days later, and youre still checkless. You sent a crisp new invoice marked overdue. No check. Then you shot off an angry email. Still nothing. Now what? Unfortunately, youre not alone. Soloists all over America are suffering from similar collection headaches. The nasty little secret of self-employment: Some clients dont pay on time, and a few dont pay at all. If you think your only option is to pass a client debt over to a lawyer or collection agency, youre wrong. Fact is, independent professionals can collect many debts themselves. It takes a little time and effort, but it can be well worth it: DIY debt collection saves the gargantuan fees that lawyers and collection agencies charge. Moreover, IPs often can extract checks from tight-fisted clients as well as any lawyer or collection agency can. Trust me. Im not just a writer Im an attorney. (Well, trust me anyway.) or phone call, politely say that payment is past due and ask why. Among the common reasons for nonpayment: Problems with invoices. Much of the time, a payment is late because of an invoice screwup. The client didnt receive the invoice or didnt understand it, or you addressed it to the wrong person or department. Sending a new one may clear up the problem. I once wrote an article for a Web site, sent a bill, and was waiting for payment 30 days later. When I phoned my Web wizard, he said hed never seen the invoice. I mailed a new one and was paid pronto.

Whats the Problem Here?

The first rule of collections is that the early bird gets the deadbeat. The longer you wait to collect a debt, the less likely youll succeed. Which is to say, dont start sweating if a payment is only a day or two late. But if a check is more than 10 days overdue, hitch up your pants and get ready to work. Begin by contacting the client to find out what the problem is. There are four ways to do this: Send a letter, write an email, pick up the phone, or pay a visit. Face-to-face is the way to go, but if you cant get your client to sit down with you, grab your cell phone and start punching numbers. During your visit

ILLUSTRATION BY JIM HSIEH

by Stephen Fishman

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 Problems with your services. Some

clients may refuse to pay because they feel your work was lacking. If a clients complaints seem reasonable, try to solve the problem. Offer to redo the work or to reduce your fee. If the client is unhappy with only part of the job, ask for partial payment. But if a clients complaints are unreasonable, demand full payment immediately.

Want to get paid? Get writing. If your client's cash flow is drying up, but he agrees to pay you in dribs and drabs, put the terms in a letter. (Exhibit A is a fine model.) On the other hand, your client may not be so cooperative. In that case, try something like the final-demand letter in Exhibit B.

will be paid. You can give the client more time to pay or work out a reasonable payment plan. For example, have the client pay a certain amount every two weeks until the entire balance is covered. Be sure to write down any new payment terms in a confirming letter and send it to the client (see Exhibit A). And keep a copy for your files.

Final Demands for Deadbeats

Before you start legal action against a client, try sending a final-demand letter. This is a formal warning: Pay me by X or were going to court. Sometimes just the threat of a lawsuit does the trick. Most clients dont want to go to court, and they certainly dont want their credit rating damaged if you obtain a judgment against them. Whats a final-demand letter look like? See Exhibit B.

Bring a Suit Against a Suit

If youre convinced that the client is not going to pay you voluntarily but has the money or assets to pay, its time to get legal. Dont be shy: Thats what our legal system is there for. Make a date with that cheapskate client of yours in small-claims court. Every state has a court specially designed to help people resolve disputes involving IPsized amounts of money. The maximum amount you can sue for varies from place to place, from $1,500 in Kentucky and Rhode Island to as much as $25,000 in Tennessee. In most states, the limit is between $3,000 and $5,000. If youre owed more than the small-claims limit, you still can sue in smallclaims court, but you must waive (or, as they say outside the legal profession, give up) the excess amount. See Dollar Limit for Small-Claims Lawsuits for state-by-state limits.

Problems with cash flow. Other clients may be happy with your work but then cry poor. One all-toocommon excuse: I cant pay you until my client pays me. If this is the case, get a firm commitment on when you

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Small-claims lawsuits are a great way to collect debts because they are fast, cheap, and within your control. You dont need a lawyer to go to small-claims court. In fact, lawyers are barred barred, get it? from small-claims courts in some states, including California, Michigan, and New York. Your local courthouse probably has a small-claims court. Visit the court clerks office the people there will shower you with the necessary forms and then follow this fun four-step plan: Step 1: File the court papers. Fill out and file your papers with the small-claims court. Usually this means completing a simple form that identifies the defendant and explains your case. (The defendant is the person who is sued. The plaintiff is the person who files a lawsuit. If a client owes you money and you sue him, you are the plaintiff and the client is the defendant.) In a few states, youll need to attach the client agreement or other written evidence of the debt. You may want to make a copy of the evidence. Oh, and dont forget to pay the filing fee: Small-claims court filing fees tend to be modest, if not downright humble, ranging from $10 to $50. When you file the papers, ask for a court date. The whole experience should last as long as an episode of Law & Order. Step 2: Serve the papers. Next, you must get a copy of the court papers to the defendant. Legal people call this service of process. In most states, you can serve the papers by mailing them to the defendant via certified mail. In some states New York, for example you can even send them by first-class mail. Certain states require that the papers be served by a sheriff, marshal, constable, private process server, or local superhero. Step 3: Get ready. If the defendant

doesnt settle the case read: pay up get ready to rumble. Gather together and review all the documentation proving that the defendant owes you the money. That includes written contracts, letter agreements, invoices, and purchase orders. Preparation time: no more than a Think your only option is to pass a couple of hours. Step 4: Go to client debt over to a lawyer or colleccourt. Winning your case in court tion agency? Youre wrong. shouldnt be hard. Honestly. Most defendants in debt cases dont even bother to show up for the court hearing. If that happens, ask the judge or clerk for a default judgment. If the defendant does show up, forget Ally McBeal, the O.J. trial, and all the other highpowered courtroom drama youve seen on the tube. Small-claims court is informal. There is no jury. Think Judge Judy. Its as simple as show-and-tell: You show the judge your documentation and tell your story. If you have a written contract or purchase order signed by the defendant, proving your case should be easy like Sunday morning. Depending on how crowded your smallclaims court is, the whole process should take a half a day or less. Youll spend most of that time waiting for your case to be called.

Collect Yourself

Winning Isnt Everything

After youve won your case and the court has entered its judgment (reached a decision and recorded it in the court records), you get paid, right? Wrong. Winning doesnt guarantee that youll ever see a dime. Though many defendants do pay up, others dont. And the court does relatively little to help you collect the judgment.

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Lucky for you, there are several techniques for collecting a court judgment: In every state, a person with a court judgment against a debtor can obtain a lien on the debtors real or personal property. Translation: The debtor wont be able to sell or refinance the property until youre paid and have the lien removed. It may take a while to get paid this way, but it usually works. Cant wait until the debtor wants to sell property? Then go directly after his assets. You can have a sheriff or marshal levy the clients bank account and get whatever it contains at the time of the levy. However, you have to know where the debtor banks for this to work. And it probably will work only once: The debtor is sure to move the moolah once he sees that you can get your mitts on it. (Its a good idea to make a photocopy of each check you do get, so that you have the clients account information.) In many states you can have the law go to the debtors office and collect any cash on hand. They call this a till tap, and its particularly effective when a debtor is a retail business with a cash register. Ask the sheriff to do the till tap at the end of the day, when the business should have the most cash available. Small-claims courts can be a good source of information. Most require debtors to answer questions about the extent and location of their assets. The Q&A process varies from state to state, but many courts force losing defendants to fill out question-

naires about their assets. And in some states, plaintiffs get to question debtors personally in court. This table-turning procedure often is dubbed a debtors examination.

Hired Help
Should you ever hire a collection agency to collect from a deadbeat client? The good news about collection agencies is that they work on a contingency basis: That is, they take a percentage of what they collect. If they dont collect, you dont get your money, but they dont earn anything either. The bad news? These agents of collection take a healthy cut, 30 to 50 percent. So even if theyre successful, youll end up getting far less than what youre owed. Besides, all an agency does is call the client or send collection letters. You can do that yourself. And because these people work on a high-volume basis, theyll never give your debt the time and loving attention that you will. Collections lawyers usually work on contingency as well, and they slice themselves the same cut as collection agencies do. Hiring a collections lawyer makes sense only if youre owed substantially more than you can sue for yourself in small-claims court at least $5,000 more and are going to have to conduct a full-blown trial to get it. If you need a collections attorney, find a good one. Ask business associates or friends. A lawyer youve used for another purpose also may be able to refer you to a collections specialist. Theres another, far cheaper, way to use a lawyer. You can hire an attorney any

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CARTOON 1996 THE NEW YORKER COLLECTION, SAM GROSS, C/O MIRA. ALL RIGHTS RESERVED.

Uncle!
Know when to give up. If your client goes down for the count, chances are youll get little or, as they say in the legal profession, bupkiss. As soon as a client files for bankruptcy something called an automatic stay goes into effect, and all collection activity must stop. Note: You might even be required to turn over to the bankruptcy court any money you collected from the client shortly before he flipped to Chapter 11. When a debtor files for bankruptcy, he is supposed to list all debts and creditors. The bankruptcy court then notifies all of the creditors. If you believe a client has filed for bankruptcy but you havent received notice from the court, you probably werent listed in the debtors papers, or the notice was sent to a wrong address. Call the bankruptcy

Be Cool
Finally, whatever happens, keep your cool. Its wrong and unfair that you havent been paid, but losing your temper will just make things worse. It could even get you sued or arrested. Dont threaten a client or use physical force. Dont yell or swear. Dont phone the client 100 times a day or at three in the morning. Remember: Youre a pro, even if your client isnt.

Jurisdiction
Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana* Iowa
*$6,000 in Marion County.

Limit
$3,000 $7,500 $2,500 $5,000 $5,000 $5,000 $2,500 $15,000 $5,000 $5,000 $5,000 $3,500 $3,000 $5,000 $3,000 $4,000

Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina

$1,800 $1,500 $2,000 $4,500 $2,500 $2,000 $7,500 $7,500 $2,500 $3,000 $3,000 $2,100 $3,500 $5,000 $2,000 $5,000 $3,000 $3,000

North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee** Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

$5,000 $3,000 $4,500 $3,500 $10,000 $1,500 $5,000 $4,000 $15,000 $5,000 $5,000 $3,500 $3,000 $2,500 $5,000 $5,000 $4,000

**$25,000 in counties where the population is over 700,000.

Dollar Limit for Small-Claims Lawsuits

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attorney, not just a collections specialist to send a dunning letter to a client. This is a letter that asks the client to pay you. Lawyers frighten most people, sometimes enough to get them to write a check. You shouldnt have to pay more than a C-note for this. And remember: When you hire a lawyer to write a dunning letter, youre buying the letter, not a collection.

court in your clients area and ask if he has filed for bankruptcy. If the answer is yes, get the name and phone number of the bankruptcy trustee handling the case. Then call the trusty trustee, say that youre a judgment creditor who did not get notice of the case, and ask for notice. After you receive the notice from the bankruptcy court, youll need to file a proof of claim, a simple document stating how much the debtor owes you. If, like almost all IPs, youre an unsecured creditor the client hasnt pledged real estate or other property as collateral for the debt dont count on ever getting more than pennies on the dollar, if that, when the bankruptcy case ends.

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