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The Business Side

August 17, 2000
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I was recently asked by a reader to address the subject of collection of fees for services. While I have addressed this very important subject in previous columns, I am sure it is time to revisit the subject. There are three different ways to view the topic when contracting the work:

Collect part of the money upfront.

Asking for some or all the money before starting work makes good business sense, especially when dealing with an emergency job or one for an out-of-state corporation. Requesting money upfront makes sense for a number of reasons. If the money doesn't arrive, you do not start the work, which is a good test of the client's seriousness to have the work performed. I would break this rule if I were provided a purchase order from a major corporation. In doing a rush or emergency job, you can experience a number of upfront costs including overtime expenses. If this work is related to environmental concerns it could take a number of months to get paid. Your company should not be in the business of helping to finance these projects. The upfront money will keep you from having to borrow money. My own dentist requests that you pay or make financial arrangements before any work begins. My son-in-law in his plumbing company requires one-half of the money upfront on jobs for materials. While there is little cost upfront for material in surveying, there is a large wage burden that needs to be paid.

Full payment at completion the work.

This is a contractual matter addressed before any work on the survey is started. If the work is in different phases, make the agreement that each phase must be paid in full before work starts on the next stage. Many times we let clients owe us so much money we are afraid to stop the work. This is true of more companies than I ever believed possible. Also, consider taking credit cards at the completion of a job. While you do turn over a small percentage of the money to the credit card company, it's still a good option when you do many small jobs for private clients.

Other considerations on payment.

We surveyors tend not to be very creative in our thinking. The following are a few ideas to get your creative juices flowing. Take a vacant lot in a subdivision of your own design as partial payment. Take an acre tract along a road out of a large acreage survey as part payment. Do not take ownership as limited partners in development unless you have prior experience with the company. At best you have little to gain except increased liability. I have been involved in these types of deals, all very unsuccessfully. I know of one surveyor that works with an attorney, whereby the attorney takes the money from the client and places it in escrow before the work is begun. At the completion of the project the attorney checks to make sure the work meets the scope of service of the contract; he then turns the survey over to the client and the money to the surveyor. He keeps a small percentage for his services.

Many larger companies want you to sign a mandatory arbitration clause when contracting work. Your company is giving up serious leverage in collection of fees by signing such an agreement. The bottom line in arbitration is that arbitrators want to please everyone. One of the easiest things for them to do is reduce your fee for real or perceived reasons. The best way to address the mandatory arbitration clause is to explain that since you are giving up certain rights by signing the agreement, you must add a 15 percent surcharge onto your survey fee. One of three things will most likely happen: they will accept your surcharge (not likely), drop the mandatory arbitration requirement, or you will not be able to contract with this client. Recently, I did not purchase a vehicle from a dealer because they required mandatory arbitration on any claims against the dealer and car manufacturer. This is unacceptable as far as I am concerned.

Collection of Old Accounts

Now that we have looked at three scenarios on contracting the work, let's look at some ideas on how to collect outstanding monies. Now I know some of you are owed money, and if you are ever to collect this money, you must believe it was earned by your company and belongs to you. Perhaps you do not know how to start collecting. Start by getting out all the unpaid invoices and dividing them into three groups.

First Group

The first group is either very old (more than three years) or lacks a contract. Many of these are uncollectable. You may try one last letter to see if you can shake any of this money loose. Get with your accountant to see what part of these bills can be used as a tax deduction. Write these off, get rid of them and vow to never let it happen again.

Second Group

The second group needs a different strategy. You have stopped billing these clients because the bill wasn't paid. Re-establish contact with them. A phone call is best. Tell them very nicely that they owe the money and you intend to collect for your services. Be nice, but be firm. Follow up with a letter and updated invoice adding interest. Finish the letter with this statement: "We intend to collect this debt." Consider setting up a payment schedule with interest. Let them charge on their credit cards a set amount each month. (This had better be in writing.) Or let them pay a one-time reduced amount to get the account off your books. Let them make an offer (this acknowledges the debt), then negotiate upward from their offer. Do not agree to do additional services to get paid for the first job. If you have a contract or some letter authorizing, then take them to small claims court.

The best part of the collection of your accounts is you as the owner do not have to do the calling yourself. In fact, the right person in your office with your support can most likely collect more of this money than you can. Sharing a small percentage of the money collected with the employee can be a good motivation technique. I am not in favor of hiring a collection agency. First, they will pick the low hanging fruit (easy to collect) accounts. Secondly, they charge a very large fee and quickly lose interest in the harder accounts. Thirdly, they will have a hard time answering technical questions used as a stalling tactic by clients looking for a method to escape from paying. Best to do collecting in-house.

Third Group

The third group of accounts are current and just need a little maintenance. Call and make sure the accounts payable person has a copy of the invoice. Some companies will only pay from an invoice, not a statement. Ask when the bill will be paid. Rebill if not paid by the end of the month. Ask if a 2 percent discount for 10 days will result in getting the bill paid. All new jobs need to have a statement sent with the delivered job, followed up with an invoice at the end of the month. If not paid in 30 days, re-invoice monthly with interest until paid. Make a telephone call to the company to make sure the invoice was received by the accounts payable person (this is a job title in many larger companies). Don't forget to record the answer in your job file. At the end of each month, quickly finish all jobs nearing completion so they can be invoiced.

Now stand before a mirror in your office, raise your right hand and repeat after me, "I will keep accounts receivable current on a monthly basis. I will only take jobs having a contract or purchase order. I will not low bid a job just to get the work. I will develop the courage to ask for a retainer. I will never, never allow my accounts to get older than 90 days."

Don't you feel better already?

Current Trends

I currently have two invoices laying on my desk that include a fuel surcharge. Maybe we all need to add a fuel surcharge to our survey invoices.

Also, the lack of quality technicians to do the work is almost at epidemic proportions. I am hearing stories that good CAD technicians are requesting salaries larger than some companies pay their registered surveyors. While on the surface this seems alarming, the underlying results may be positive. Maybe these wage demands will increase fees that will result in paying wages to attract the best and brightest to our profession.

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