A member has written in to What could possibly go wrong? with a question about getting paid:
Dear What could possibly go wrong?,
In recent projects I have found it increasingly difficult to get final payments, especially when my services and expertise are seen as less required by the client. Do you have any strategy/suggestions I could adopt?
Dear ArchiTeam member,
Not getting paid because a client company has failed is a miserable feeling but not getting paid because the client thinks they can get away with it is the bitterest pill of all. They know that there are costs and time to recover the debt. Even though recovery costs are part of the initial agreement they hope you’ll see it as too hard and won’t bother. I don’t think it is too hard and I do bother, but it is painful.
Getting paid and on time is one of the bigger risks of being in business. I see it as a task of reducing the risk as much as possible
We all see many businesses these days requiring the details of a credit card before proceeding with any transaction. I recently hired a car whilst on holiday and the hire company wouldn’t let me put a foot in the car until they had taken an impression of the card. They said it was to deal with any fines etc that might be arriving as a result of my cavalier approach to the road rules, but not in those words. But I also suspect that they want it in case something more serious happens, like me damaging their vehicle. In truth this only reduces their risk because they know that I can always simply cancel the card with an online instruction and they’ll have to chase me. Something is better than nothing.
We, however, have something available to us that is a whole lot better than nothing: cold hard cash. The ArchiTeam client architect agreement has included in the breakdown of fees a section that shows an allowance for a deposit. I now don’t take on any new client without a deposit. If they argue I take it that the warning bells are ringing and I’d better listen.
So is it really ok to charge a deposit and how much should it amount to?
To check out the bona fides of insisting on a deposit I got in touch with Consumer Affairs and the Architects Registration Board of Victoria. Better to ask before so I don’t create more of a problem than the one I’m trying to resolve.
Consumer Affairs told me that asking for a deposit is not a problem and there are no restrictions on the amount of the deposit. In fact they told me it could be for the whole contract sum. Good, but I don’t think the client will sign up for that.
The ARBV said that there is not a problem in an architect insisting on a deposit.
With that out of the way, how should the amount be worked out? This is basically what is referred to as a commercial decision. It should be a reasonable amount for the project that doesn’t upset the relationship with the client.
I look at the size and complexity of the project as part of my risk assessment as well as making some judgements about the client. Are they developers (say no more), or are they a mum and dad reno with the ability to stay the course of the project and pay up. I also look at the outline of our project delivery program to judge what the monthly invoices might look like and usually settle on an amount the would represent a typical month’s invoice.
Towards the end of the project I keep an eye on the invoices accordingly. I keep the deposit for the entire project and credit it against the final invoice.
This strategy won’t necessarily ensure that you get paid but it will certainly reduce the risk.