Getting paid: load the odds in your favour

Clients withholding payment is every landscapers’ worst nightmare. But there are ways you can make this scenario less likely, says Next Level Tradie Daniel Fitzpatrick

It's 3am. Luke can’t sleep. Why? His biggest customer owes him just shy of $50,000. And he’s worried they’re not going to pay. It’s been eight weeks now and they’ve missed two progress payments.

“It’s coming,” they say, “once we get paid, we can pay you.”

This is causing serious cashflow problems for Luke. Suppliers are getting upset. Staff need to be paid. If the money doesn’t come in soon, he’s in trouble.

I’ve changed the name. But yes, this is a true story. Have you ever found yourself in this situation?

Nearly every honest landscaper has been stung at some point. If you’re in business, odds are, you’ll eventually strike a customer who doesn’t want to pay – or doesn’t have the money. Here are some strategies I’ve picked up from years of being self-employed, helping landscapers through the cashflow minefield, and from debt collectors and lawyers. These things won’t completely protect you, but it’s your best chance to keep losses to a minimum:

1. Spread your risk

It’s always better to have several customers, rather than relying on one or two major ones. That way, if one customer stops paying, you’re still OK.

2. Have terms of trade

Source these from a professional, such as your debt collector, trade association, or lawyer. It might cost a few hundred dollars but could save you thousands (even hundreds of thousands) if/when things turn to custard. Always get your Terms of Trade signed off by the client or include them in your quote before starting a job – and make sure the client understands you’re the one who makes the rules.

3. Deposits and progress payments

With bigger jobs, take deposits and have progress payments at set milestones. Make sure they are enough to cover materials and labour. This way, if the customer doesn’t pay at any point,

you’re not significantly out of pocket. You should also be prepared to stop work until bills are paid. You’ll quickly discover which customers are the good ones.

4. The job's not done until you get the money

Make sure there are no excuses for not paying. For smaller jobs, invoice and take payment on the job (if you can). Invoice your jobs ASAP, send reminders, make it easy for clients to pay, and follow up late payers immediately and consistently – but try and keep the tone light and friendly.

5. If you think you're not going to get the money, negotiate

One of my clients was owed a lot of money by a larger company. They were using every trick in the book, from challenging invoices, through to promising payments, which would never turn up. It was a game to them. But it wasn’t a game to my client. He had a family to feed.

When he checked around, he found this big company was doing the same thing to other

subbies. That’s a really bad sign. So he lawyered up, negotiated hard, and they offered him reduced payment (as in, they decided to deduct around 20 grand off the invoice for no reason).

I told him straight: “I don’t think this company is going to be around much longer.” They were

burning too many bridges and telling too many lies.

He took the deal and walked away. Yes, it was a kick in the guts but he’s still in good shape. Imagine how much worse it could have been.

Sometimes, it’s better to get out with your shirt on your back – even if you have to leave your jacket behind. A few weeks later, that big company went bust. It sounded like no one else got paid.

6. PPSR (Personal property securities register)

Put large overdue amounts on the national debt register: ppsr.companiesoffice.govt.nz.

If your client goes broke, anyone on the register gets priority. In other words, you get paid first

(before others they owe money to, who sadly usually end up getting nothing).

7. Construction contracts act

This legislation is designed to help with contractors' cashflows. Basically, if your invoices are compliant, it can dramatically improve your chances of getting paid.

Why? Because your client must dispute an invoice by way of a ‘payment schedule’; it must be in writing, identify how much they will pay, and include the reasons and calculations why they are not paying the difference.

If they fail to issue this schedule within the acceptable timeframe, they must pay the full

amount. This is usually enforced by an application for summary judgment in the District Court or the High Court. Any legal fees spent chasing the debt can also be claimed.

8. If all else fails, have a good debt collector ready

A good debt collector, in my book, is prepared to get on the phone, or visit in person, to chase the money – not just write a few letters or emails that end up in the bin.

Bottom line: make sure you load the odds in your favour. Can you really afford not to? You’ve done the work. You deserve to get paid. As for Luke, he’s still waiting.

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Trades business coach Daniel Fitzpatrick of Next Level Tradie has been helping tradies build businesses they are proud of since 2010. Want to grow your business without the stress? Book your free growth strategy session with Daniel at: nextleveltradie.co.nz/nextstep