Being a trusting person, a people pleaser, and having a genuine desire to help people can put you in some pretty precarious positions and situations both in your personal life and your business life if you aren’t careful. This happened to me recently when I made a rookie mistake.
Let’s Dive In So You Can Learn From My Mistakes!
It was a steamy Friday evening in July when I received a referral from a trusted source. They explained that they had a friend in New York who needed immediate help with a social media marketing plan that could lead to a large account for me in the future. The opportunity painted for me was everything you could want in a client…the opportunity to work with a “B list” celebrity, a fashion brand in New York City, and a shot at aligning myself with some big names. As a former corporate retail professional, this gig was right up my alley! My brain become flooded with adrenaline – that old familiar feeling of frenzy, excitement, and pressure of the retail world came back in an instant. Ah! How I missed that feverish hustle.
The opportunity sounded it great and they needed me to get started right away…like that night, the minute I hung up the phone. I hesitated for an instant because it was 6pm on a Friday night and my father was scheduled to go into the hospital very early the next morning for a heart procedure and I needed to be there. Should I really be starting something so BIG? Instead of turning the opportunity down, I agreed to help but was very transparent about needing to be at the hospital the next morning. The client was very understanding and thankful that I would take on the project so late in the day. So, I got started.
My Rookie Mistake
My rookie mistake was actually a combination of 3 mistakes. All three were HUGE no-no’s in my standard operating procedure that I ignored because of:
- A promised opportunity
- A trusted referral source
- The need for immediacy
I got sucked in…in fact, I was played.
Early on in my journey of being an entrepreneur, I was taken advantage of, not paid my worth, and never got collections on invoices which I ended up writing off as a loss. I learned a lot from those early days but somehow the allure of what was promised to me in this situation made me forget those hard lessons! [insert facepalm – lol]
Below are the three mistakes I made and how I usually address them, and you should too so that you aren’t taken advantage of.
Mistake #1: We never discussed price.
Things happened so quickly that we never discussed an estimate, a price, or a not to exceed amount. Due to the passion I have for what I do, rarely does it ever feel like work. To me it’s fun and sometimes I forget to talk about pricing, plus, it’s also a conversation I don’t like having.
In retrospect, I should have told the client up front what my hourly rate was and what my best estimate was for getting the job done. Additionally, we both should have mutually agreed on a “not to exceed” amount so that there were no surprises down the road.
Mistake #2: I never collected payment up front.
This is something that I always do. When I first started my business, in good faith, I would always bill in arrears – after I completed the work. I felt this was “good customer service” and it would send a message to my client that I am so confident in the quality of my work that I always bill at the end of the project. I learned quickly when I first started out that this is the easiest way for a client to disappear and never heard from again.
What I should have done was collected a deposit up front and then billed and collected the final amount prior to releasing my work to the client.
Mistake #3: I never sent/received a signed contract
This is so important. The contract holds all of your fighting power. It details your terms, what happens if payments aren’t made, how much interest you will charge, when you will send the invoice to collections, how litigation will be handled if goes that far, and so much more.
Fast forward 120 days after I sent the invoice, I still had not received payment but the firm who hired me had 120 days to use my work, my ideas, and experience to position themselves and their business as a top contender in the proposal race they were in. I was so infuriated…mostly at myself for taking shortcuts and skipping steps.
How I resolved the situation
Since I was getting nowhere with the client, my last resort was to hire a collections agency to resolve the situation. If you have an invoice that has been unpaid and you are considering going the collections route, here are some things you should know before you go down that road:
- Some agencies will only work with claims of $10,000 or more
- Others will have collection tiers (examples: $1,000 and below, $1,000 – $10,000, $10,000 and above)
- Some agencies will only work with certain industries
- Some work on a contingency basis (you only pay if they succeed in getting the bad debt paid)
- Some agencies require a startup fee plus a flat rate percentage fee
What type of agency should you select?
Everyone’s situation is different when it comes to collections. For me and my needs here’s what I looked for when selecting an agency:
- One that only got paid on contingency (my invoice was relatively small)
- Offered a flat % rate on the amount collected – no startup fee
- Skip-tracing procedures – which means the agency uses and has access to several databases that allow them to locate a debtor who has left no forwarding address. This is especially important if you’ve been personally contacting your debtor and have been routinely ignored – which was happening to me
- An agency that has insurance, is bonded and follows the “Fair Debt Collections Practices Act” so that you are not held liable for harassment – do your research in this area!
A good agency will have all of their credentials on their website so you are able to verify how they operate. It’s also a good idea to ask what line of action they will follow in order to collect your debt and if the bad debt will be reported to credit score agencies.
When I had all my ducks in a row and I was ready to pull the trigger, I gave my former client 7 days to pay the debt. True, I had already given the client 120 days but I wanted to be transparent about my true intentions of going to a collections agency. Twenty-four hours before sending the debt to collections, I sent one final text and email stating the time that the collections contract would hit the “collections floor.” Two hours later I received payment in full via Zelle. In my mind, I think the former client thought I was bluffing when it came to collections. When I started using terms like skip-tracing and the collections floor, things changed very quickly.
Some people may challenge me as to why I would even bother with a collections agency on an amount that was so small. There are many reasons and most of them come down to principle, setting boundaries, respecting myself, my work, and not allowing others to take advantage of me. Other reasons come down to the example I am setting for my daughter as she is exploring becoming an entrepreneur, how my mom was proud that I took action and, my dad saying “Lora ‘grew some!’ LOL”…And that’s enough for me!
Have you ever sent a client/customer to collections? What was your experience and how did it turn out?