Canal Street Chronicles claims that Rob Ryan, the Saints embattled defensive coordinator, owes just over $43,000.00 to the local watering hole Ms. Mae’s. For those of you who aren’t aware, Ms. Mae’s is open 24/7, and is famous for cheap drinks, including $2.00 well cocktails and $2.00 or $3.00 beers (the bar raised a stink a few years ago when they doubled their prices from $1 cocktails!). So, needless to say, a $43,210.48 tab is bit outrageous. During the 2013 season, Ryan because famous for appearing there after Saints victories and buying rounds of shots for the entire bar. Even so, a $43,210.48 tab is ridiculous.
The article is satire. But enough though it’s all for fun, it made me think about all small businesses who contact us about collections. This happens often. All. The. Time. So how do you prevent yourself from having to send out Big Lou and Crazy Tommy to collect $43,000.00 from a client?
Don’t Extend Credit
The simple answer is: Don’t extend credit. Ever. As attorneys, we can draft contracts to protect you, send demand letters for payment, and file lawsuits. But, based on our experience, the main reason that a client is not paying your bill is that they simply no longer have the money. Of course, that’s not always the case, but more often than not, that’s a significant reason. Maybe they did at one time, or maybe they never had it to begin with, it doesn’t really matter. What it boils down to is that even if you have a contract, and even if you file a lawsuit, you can’t collect money from someone that doesn’t have money.
Deadbeat debtors is to be expected if you’re a bank. Banks evaluate the risk, make the loan and you hope that they get repaid. Unpaid loans are part of a bank’s business model and those costs are calculated as part of other loans.
You are not a bank
Most businesses are not running a credit report, reviewing a client’s financials, or looking at bank balances. On top of that, only the most organized businesses are securing some sort of collateral or asset to protect against a default on the loan. That makes me ask:
Why are you loaning clients money?!?!
I understand that we extend credit in the hope that we can do the work for them and get paid later (I say “we” because I’m guilty here, too). But the
best only way to avoid a large account receivable, the best way to avoid having to send out Big Lou and Crazy Tommy is to avoid extending that credit in the first place.
Make it a New Years Resolution
New Years is often the time that people set new goals. Make this your resolution in 2015: No credit. Ask to be paid in advance. Ask for money in escrow. Ask clients to place a credit card on file. Yes, you may lose some work because of such a policy, but is it really work if you don’t get paid (or have the hound the client for payment, which is more work that you’re not being paid for).
Credit card applications are relatively quick and easy to fill out, so the next time a client wants you to work on credit, do yourself a favor and ask them to fill out that application. Allow the credit card company to bear that risk. The best part about this policy: I can promise that if you don’t extend credit, you won’t have to hire a lawyer to collect on that credit. And who really wants to hire a lawyer?