I'd rather be a pest than have someone pay me late. Hello, and welcome to the Business of Architecture. I'm your host, Ryan Willard. And today, we're going to be talking about how to avoid late fees or late income or late payments, or past dues. This is something we've spoken about a lot. On the podcast before, it's something I talk a lot about with my own clients here Business of Architecture is something very dear to my heart, I know the pain of what it's like to not be paid on time or for client to be given the the run around. It's something that my own business mentor we dealt with. It's something that all businesses end up dealing with or facing at some point. And it's a very painful situation. This podcast is produced by Business of Architecture, a leading business consultancy for architects and design professionals. This episode is sponsored by Smart practice, business of architectures, flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com. Or if you want to speak directly to one of our advisors about how we might be able to help you please follow the link in the information, some of the strategies that we're going to go here today have been born out of our own experience. And they're very much in response to, you know, some of the things we've seen in architecture practices, and lots of practices end up getting very complacent with their collections process. Either. They haven't got anyone in place, who actually can go and get the money. If it's the business owner themselves, they absolutely hate doing it. And so they ignore it. Sometimes I'll speak to architects, and they will be telling me oh, it's like a savings account. It is bloody, not a savings account, please do not equate these past few late payments, like a savings account. It really is not like that. You know, in some cases, when I look at a practice, and they've got 150 200 $200,000, which is late and it's over 90 days, for example, that's somebody's salary, it's two people salary. In some cases, you know, that's a lot of not having that money in now is causing problems. So lots of businesses end up to end up learning how to walk with a limp, if you like, they end up just becoming accustomed to that always been a certain amount of money, there's going to be late, they don't want to rock the boat. They don't want to upset the client relationships. And it it's it's damaging to the business in the long run. It prevents growth, it prevents that resource being used or deployed. Elsewhere in the business. It prevents you from investing in new CAD licenses or new training and new staff members in new equipment in new office in your own profit for your own life and enjoyment and fulfillment. It stops you invest in business consultants in marketing. It just constrains the business. It's really really daft. We've had some incredible client stories of people who have gone above and beyond what we've been training them to do, to go and get their money back because they get so focused on getting their money back that they go after it with a lot of vigor and passion as a podcast that INEC did a little while back with Marina Robina. And her tales of how she actually went picketed outside of a client how she took somebody to court. And, you know, she didn't, she didn't back down. And really testament to her strong willed approach, and also just an indication of like somebody who's had enough, okay, and, you know, I don't want people to have to go through and do and go to the extreme lengths of like that. And from Rena, it was a very powerful business lesson and that she doesn't take any shit from anybody now, okay. And we want our all all architects to be in this position. And one of the stories I saw a while back was was a business that had over $2 million of outstanding payments. And it was very painful to see that very shocking. And what what was very apparent was that it wasn't just, you know, one client, it was definitely Pareto principle where, you know, the 80% of the money was was with 20% of the clients, but it was also lots of little $100 here $200 Here a fetal was here, $2,000 here, $3,000 here. And it was like just a chronic cancer throughout the business, which was a reflection of a very poor collections process. So collections is very serious. We wanted to get skilled in being able to make sure that we get our money that's owed to us that we get skilled in negotiation in, in sales. Again, negotiations and selling skills come into play here when retrieving your money. If your business is kind of carrying that kind of debt, the other sorts of things that happen or the kind of large amount of past your accounts receivables is, guess what happens, your accounts payable goes up. So I'll see businesses when they've got past Jews that are very high, and then guess what follows, they owe consultants a shit ton of money as well, it doesn't work, how much stress is that that you're carrying? Then somebody owes you money. Now you owe other people, I know that there were these stupid fucking contracts that are called Pedro and get paid, and that the industry just accepts it. Okay, but good luck holding on to decent consultants for long periods of time, when you just keep on paying them late. It frustrates me when we work with some of our clients here, Business of Architecture, who are what you might call sub consultants, like lighting designers, or in some of the engineers, or landscape architects, and they're working under the umbrella of an incompetent architect who hasn't got the balls, or the mechanisms in place to go and get their money and make sure that they're getting paid on time. And this architect is making money making a markup on these people's fees and won't allow any of the other consultants to go near or even know who the flipping client is. It's ridiculous. Grow up like that. For me, I find that incredibly frustrating when architects are doing that, you know, and acting like the leader of the of the project and cannot lead the client to paying them. Alright, and then that means now other people on your team have to suffer as a result of your negligence with not having these, you know, difficult conversations with a client. All right, so I'm very compassionate with it as well. But I'm also I want to stress how important and how serious it is, because it really has this awful knock on effect. And when I see architects and they've got they owe their account their of their consultants, lots of money, you know, we've got to do, we've got to get on the phone, we've got to do what we call restoring integrity with these over these consultants, we got to put a structure in place of how we're going to pay them. Okay, and we're going to be in communication, what doesn't work, what causes overwhelm, which causes the stress, which causes the fatigue is avoidance, and not doing anything, burying your head in the sand, we see it so often here business architecture clients, when people is sometimes the first time they've met, you know, we've got this amount of money that's outstanding. And they pick up the phone and they jump on, and they start making those phone calls to developers to their clients to get their money back. And it's so empowering. And I just think it's a, it's a great little space, to, you know, to develop my business muscle and business strength, communication, strength, negotiation strength, even if it's for a few $100, you know, it's good, it's a good good training ground.
I've had to do it myself with clients, you know, certainly in my early career of running a business, you know, it was not something that I wanted to do. I remember having arguments with clients about money, and then then feeling like it was my fault. Like, I had done something wrong. And one of my business mentors trained me and, you know, just going and getting money that is owed to me. Now, you know, with Business of Architecture, for example, with our clients here, we have a lot of systems and structures in place to make sure that everyone pays on time, and that people can pay on time. And it's communication, if anything happens. And also, if it does happen, then we're in a group and are in a supportive group dynamic and people will be called out and we will discuss it right then and there. And I'll get commitments in front of a group of people. Okay, that's quite an intense environment, but we're doing it also as a way of kind of just demonstrating the kinds of conversations that you can have in real life. Okay, so, I'm going to go over here, how to avoid these late payments, some things that you can consider and put into place in your own practice. And I also just want to conjure up this idea of what does it look like? You know, what's the possibility of other practice that's got on time payments? Well imagine that clients pay you up front. Okay? Imagine that your invoicing is simple and well structured, and is very efficient. Imagine never having to chase a client or delinquent client ever again, imagine being able to have the resource in your business so that you can hire when you need to hire. And that you're not worrying about late payments, imagine having the resource where you can take it out every quarter as for your own profit, imagine having the confidence of just being able to communicate with the client imagine really powerful, strong relationships with your client as a result of actually holding them accountable to their contractual agreements that you've started with them. Okay, so in many times, people think that the relationship is going to be rocked by you holding a client accountable. In many cases, the opposite is true. We had a client recently who was paid late, it was about 70,000 bucks, as I remember. And they were very reticent, or very hesitant to getting on the phone and asking the client didn't want to rock the boat didn't want damage the relationship with a bit of encouragement and a bit of rehearsing, walking through how the conversation could go. So it didn't need to be so confrontational. They got on the phone spoke with a client. And you know, that the CEO of the business found out about this complaint, what has happened happening because she persisted. And the CEO found out the CEO jumped on the phone with them immediately, and apologized profusely, gave this person their private phone number, and said, you send all invoices to me directly. I'm so sorry, that happened, that relationship has now been strengthened as a result of our client, holding their client accountable for their contractual agreement. So imagine client relationships actually being strengthened as a result of what we call project reclaim of you going and getting your money. So let's have a look. So number one, number one, prevention is always better than cure. I advise learning how to sell learning negotiations, learning how to communicate your value, learning a sales structure and framework, which invites the difficult conversations of late payments and money up very early. It this is interesting. So in our sales process of Business of Architecture, and we're dealing with clients, we get them to talk about money with the client, and what their budget is, and how they're going to afford it, and where they're gonna get the money from. And our services are really expensive, and etc, etc, all those kinds of objections that the client might have, we have them right upfront at the early stages, and it's done in a very intelligent, it's done in a very intelligent manner. Avoiding that kind of conversation is just not good news. And means that you're open and vulnerable to being taken advantage of knowing how to negotiate and how to sell means that you're gonna have a communication style and a communication, expertise, or intelligence, where you can bring up the implications of late payments, early on, you can start dropping seeds, you can start having this in your early negotiations. And it's just important to be able to have those skills and in your tool belt and start communicating about the importance of, you know, what happens if we get paid late? What do you normally do when clients pay you late? What happens? You know, how does your financing structures work? It's not uncommon for us to experience with developers that they might have issues with investment coming in when they wanted it to come in. How would you suggest that we're going to, we're going to deal with this. Okay, you can start open up the conversation and you can have your own strategies ready to go for what you might choose to do so on that. The second thing here is prevention is better than cure. Speak about it early on. Number two, I should start to preempt late payments, and actually structure it into an offer for one of your clients. Now developers are a perfect example of this. Their business model has certain financial cycles associated with it. And those financial cycles if you don't know anything about them, then you're an idiot. And this should be part of your basic research into working with anybody is understanding what their financial cycles are, where's the money coming from? What's their budget? How do they get to that budget, who were the consultants that they were speaking to, to get that to arrive there. We want to know what the financial cycles are of the other party, because you can start to preempt, in this scenario, then different offers to accommodate them. So for example, you might know that working with developers, that they're often it's very lumpy money, and often they haven't got investment ready to go to cover the soft costs of the architecture. Okay. And if that's the case, that puts you at a risk here for being late payments, and we've had clients in the past who have structured offers where it's like, okay, well, if you want to pay us, here's the rate, it's $100,000. To do all the work up until planning, and you've got to pay us on time, bang, bang, bang, here, here are the penalties that are involved. If you want us to postpone your payments, till after planning, for example, it's going to be $150,000. Okay, so now there's, there's an offer, in place, ah, actually hasn't done? Well, let's do that. Because we're always, you know, we actually do struggle quite a bit with with our results with our investment money. Okay, so this is a just an overly simplistic illustration there, but you just make the point of how you can start structuring your fees in a way that is understanding of the client's financial cycles, but also means that you can start turning late payments into an offer into a service, there's value associated with it, again, being able to sell and negotiate and understand what the pains and the problems are, of the client is absolutely key to this, you can't do a lot of what I'm talking about by negotiating over emails. The third thing is to use what we call an expectations meeting. Okay, now, this is what we call it internally, an expectations meeting. And really, what it is, is it's a some kind of kickoff meeting, or it's a meeting where you sit down with a client, and you outline all of their roles and responsibilities in a project, I'll often frame this of our clients as being a kind of instruction manual for the client of how to get the best out of their architect. And this is a really important meeting to have, where you can start to outline with the client. You know, here are the terms and conditions of our contract is all the decisions that you're going to have to make throughout the process. Every time you make a decision. You know, we're going to be assisting you there. But if you delay on decision, it will have a delay and knock on effect. That can be magnified or amplified throughout the throughout the team, the rest of the consultants which end up costing you money, here are the most if you're doing a residential here, the most expensive
rooms in the house that were decisions made there, they're going to be, you know, x times larger than making decisions elsewhere. Here's what happens when there's late payments, okay, and you can soften this with the client, it doesn't need to be I again, this is why I really think doing this as a meeting and doing it face to face is so important, because you need then you get to control the way that you present it. The way that you discuss it with the with the client, the language that you use, we're not trying to be confrontational or X, you know, or accusing somebody of doing something before they haven't done it. We're just saying, Look, in many cases, I'm sure you guys are not going to do this. But we've had a problem before with late payments. We're a small business, when we get late payments, it has a knock on effect to us, it has a knock on effect on our team members, it means that we put a pull off resource, you know, you might use a you might use an anecdote of a story where you got paid late, and you had to pull off team members of their job and it slowed the project down and all this kind of stuff. And you can assure the client with language around you know, I'm not I'm sure you guys are not going to do this. But this is the reason why we have this mechanism in place and you can just have a normal conversation about why you're doing this. And the sorts of the pieces in play. I've done this myself with clients of expectation meetings of architectural clients sat there at a dinner table and and we've gone through all of these things and expectations meeting and have told them you know, the importance of making sure that we're all getting paid on time and that, you know, I'm paying other consultants or I'm paying my team members and it's too So much easier to do at the beginning then do it when they're paying, you're late here at Business of Architecture. We call it an orientation call, we actually have a list of 15 or so different things on on a contract. If you'd like a learning contract, we call it. And we actually have people read it out. And we say, do you agree to doing this? And they either say, I don't agree, or I do agree. Okay. And if they don't agree, then either we talk it out there. And if it's, if it's a non starter, it's a non starter, and we'll shake hands and parts friends. But in many cases, people actually read it through they agree, they ask questions we explain. It's just a grown up conversation about the sorts of things that happen when people do business with each other. And it's far easier to do this upfront at the beginning of the project. To avoid problems later on down the line, okay, and actually having it as a conversation, having somebody speak out to you, and say, I understand that, yeah, we're not, we're not going to do that, it's much, much more meaningful than you sending a T and C's sheet via email, which they don't end up reading. So the next thing before reminders before and after an invoice. Now, I do recommend that you reduce your payment times down to a mean pay upon receipt, obviously, is is the best, actually better than that is is for you to collect money upfront. But in terms of invoices, there's nothing wrong with you being loads of reminders before and after the invoice, let's say you are doing like a 30 day collections period after the invoice has gone out, okay, you can send some reminders to the invoice saying something along the lines of we're going to be sending you the invoice at the end of the week for the work done for March. Here's our bank accounts, we look forward to continuing to work with you. Please remember, we always like it when you can pay it as soon as you can, that you're able to, you're going to have a 30 day period that we'll be ending on give the date. Okay, you send the invoice out. And then you can start sending reminders. You know, two days later reminder, you've got 20 days left, or you know, you've got 28 days left, until your fee becomes overdue. You've got 27 days left, blah, blah, blah, okay, you can set these up on QuickBooks or whatever invoicing software that you're using these days. So that comes out automatically. And I'd rather be a pest than have someone pay me late. Okay, so, again, you can do that if the client really says please turn off these damn emails, they get on my nerves. And you can say, okay, then we can expect to be, you know, you've been if they've been paying on time, every time fantastic, right? Then you can, you can reduce the amount and if they, if it starts to become late, then you can turn their reminders back on. I've heard of businesses, who, and this is probably before the days of automated email campaigns, where they would have had, you know, Karen, from accounts, you know, a false email set up, and they would be emailing the client. Hi, it's Karen from accounts, just checking in was the payment blah, blah, blah. And the client would be like off happy when Karen to the architects that Bremen, Karen, she's always on my case. Sorry about that. She's very officious, and actually, it's the architect. So reminders before and after your invoices. Perfect, it just increases the likelihood that you're going to get paid on time, you would have been the invoice in the expectation meeting. Explain to them the escalation process that you've got in place, if you don't get paid, you know, you've got 10 days, then we stopped work, then I call the lawyers, then we release the hounds or whatever it is that you've got. But you can remind people gracefully and politely and it not be a problem. Okay? I mean, it makes sense that you've got somebody who's on collections, either it's a bookkeeper. Or if you've got a bulldog in your office, somebody who just loves that kind of work, who loves chasing people down, you know, give them the task of making sure that they're doing some of the chasing for you. We have in Business of Architecture, we do like a program called Project reclaim. So people who are dealing with large amounts of outstanding or past due payments, we enrolled their bookkeepers, they get enrolled themselves. Both of them are making calls, putting structures in place to make all those collections but some sort of collection process reminders before and after. No props on that. Getting into the habit of you know having people pay on receipt or billing up front billing up front is even better. Again, your sales and negotiation skill It was going to need to be sharp here in order to be able to your sales and negotiation skills are going to need to be sharp in order to be able to get that agreed. But you'll be surprised at how easy it is in many cases. And we've had plenty of our clients who have just been totally surprised when they've switched over to billing upfront, and taking money from from from clients and particularly with residential clients. So someone who's never inexperienced when the building, there are no different. They're just like, okay, sure, great, fine. Sounds good. You know, you'd be surprised how many commercial clients who want to pay stuff upfront that helps with their tax for tax purposes. Sometimes, they might have other reasons why they want to pay upfront. I've done this myself with consultants or people that I've hired in the past, we want to pay you all now because it's done, its allotted trust you great scope. Number six, I would avoid milestone billing. In general, I think milestone billing is very problematic. You your milestones are vulnerable to loads of forces outside of your control. It's vulnerable to client decisions. It's vulnerable to planning, planners decisions, thinking, ineptitude, incompetence, you're vulnerable to other consultants and their ineptitude, their brilliance, they're needing to do something, again, them not running their business properly and being delayed all sorts of stuff. You're vulnerable to
just a lot of different things. That means that your milestone, you know, the scope creep, for example, the client suddenly decides they want to have more space, they want to have more things put into the project, that milestone that you had set to do, the billing has now just moved further away. Imagine that you're working with a client, and you've already got 30 days, 60 days on your invoice anyway, and you had a milestone set for the first two months. And then that two months gets pushed out to three or four months. And then you bill, and you've got 60 days, and then the client takes an additional 30 days to pay you. Oh my goodness, you know, you've gone fly off the year without getting paid for a project that you're been cash flowing. That does not make sense. It's not very healthy. I think milestone billing should and can be avoided easier than you might think. I know, there are some businesses I've interviewed before in the past to make it work. And they're very, very aggressive with making sure that things are getting done. And, you know, they're doing stuff which has got a lot of control. But even those businesses, you know, offer, I'll ask them more questions. And then I asked I should show, okay, milestone billing, I think is very, very difficult. And you're asking for late payments, you're asking for just your own inability to be able to invoice which will come up from that. And number seven is implement a client bonus. Now, we released this as a podcast a little while back. One of our clients at Business of Architecture, Mark Elster from ame had a wonderful mechanism in his contract, which he called the client bonus, which was essentially a small percentage of their total fee. Actually, I think it was quite a big percentage, it was about 1/15 of their total fee was put aside into an escrow account, every time the client made a payment. And the idea was that the if the client behaved themselves and satisfied all of the conditions of the completion bonus than they would be entitled to receive that money back at the end of the project. One of the things that was included here was late payments, so the client wouldn't pay late. Another one was allowing the architect to take photographs and published the the marketing collateral in magazines, which is often was quite a quite a big problem for many architects. And Mark was saying, basically, at the end of the project, if the client had done all of these things, then that money would be returned. And it was a very, very powerful mechanism. Again, you got to be a good negotiator to be able to get this stuff implemented into your contracts. Okay, I've heard plenty of people who have listened to that and go, Wow, what a great idea and then never been able to implement it. Because they don't know how to negotiate it. They don't know how to word it. They don't know how to bring it up as a conversation with a client. Okay, so again, really so much of the collection so much of the avoiding payments becomes easier, with good solid negotiation skills under your belt. subscription billing. So this is one thing that we do with all of our clients a Business of Architecture, we train them in subscription billing, which is a form of flat billing, if you like, except there's a little bit more nuance to it, and you can adapt it to mitigate your risk over stages where you might be doing a lot more input if you don't want it to be completely flat all the way through. But essentially, what this is, is, let's, let's imagine, just for the purposes of getting the idea across, you've got a fixed fee, and you've got a fixed amount of time. And you split that fixed fee, equally across the amount of time that you're going to be doing the project. Okay? It's not always as simple as that. Okay, and the actual subscription method of it means that you can create all sorts of new ones, and you can charge higher on for a portion over a phase and charge lower at different phases, you can, you can make an ebb and flow, and you can do all the other things that we were talking about with it. But ultimately, it's a form of flat billing, which just means that the client knows exactly what they're going to be paying every single month, and you get them to pay at the beginning of the month, rather than the end of the month. And if they don't pay, then you don't do the work that you were scheduled to do. It's as simple as that. Number nine, here, it helps for you to define an escalation process. Okay, so you actually map out, what does it look like in terms of reminders, we're going to remind a client every, you know, for the first seven days, or actually, the seven days leading up to an invoice, we send them out reminders, and you can spend some time wording, what those emails are gonna look like. And it can be very cheery and happy and inspirational. And then, after we've emailed the invoice, we're going to have reminders that are going to happen every two days. And again, you can word the emails, then you've got your period where it now becomes officially overdue. What's the first email look like? What is the second email look like? What does the third email look like, and you can start to escalate it. Okay. And at some point, there's going to be a bit where, let's say, after 10 days, you stop work, if you haven't received any money, and you'll be applying interest at that point. Great. And then let's say after 20 days, 30 days, whatever it is that you think is appropriate, when your escalation process, then that's when you have to resort to legal action, okay, but it's good for you just to map it out. Okay. And in most cases, you'll end up kind of adapting the escalation process to suit whatever particular client is that you're working with. Because sometimes you've got a better relationship with them. Sometimes they're in really good communication with you. And if they're in good communication with you, then you can hold them accountable to getting a payment structure in place with dates, times, and how much money is going to hit your bank account. Okay, so that's really what you're what you're doing when someone's late, you know, with the payment for the main wrestle that you have to have with them now is to put a structure in place for them to pay you back a payment structure. And that means having dates and times and amounts. Okay, that's the thing that people are most slippery with. So we'll often hear people ring up a developer, yeah, I'll pay you on Tuesday, or pay your pay you at end of the month, in month comes around and nothing's happened. Okay, so we got to get people to agree to certain dates and times, and then you've got to be on the ball with holding them to account. The worst is when clients are suddenly ghost. Okay, and when goes clients ghosts, that's when we're going to have to get much more serious with the actions that we take an escalator into, into legal threats. And then to actually go into court, we're going to call this number 10. The worst thing that you can do is avoid avoiding is do nothing. And again, as I said, at the beginning of the podcast, this is really something that's chronic. And I understand these are uncomfortable conversations. And we don't want to rock the boat, we don't want to upset the client. But the reality of it is, is that the client has already rocked the boat, they've already upset the relationship by not carrying out the agreement that you had in contract to pay you. Okay, they've already rocked the relationship, and you deserve your money because you've done your work. You know, it's different. If there's a bit of if there's pushback with what the billing is or something like that, then you've got to sit down with them and explain and, you know, if there's, you know, discrepancies or whatever, then great, then you got to have a conversation about it. But in many times, just avoiding picking up the phone or softening it with treating it like oh, it's a savings account is doing a lot of damage and is not going to be very helpful. So avoid avoiding and then the fine One thing I'll say here on avoiding late payments is just be aware of where your leverage points are with the client. Alright? So be very cognizant of when you're going to release drawings of when you're going to do submittals. Okay, so you might want to be designing your final payments, just before you submit any information. And the client by refusing to pay you or being late with a payment, then means that you don't submit the drawings for approvals. Okay? There are things that you can do on projects when they were late payments, like put liens on buildings and things like that. But there's usually very short windows of time for you to be able to do it to make it kind of practical, but just be aware of each phase of work. Where are your leverage points, okay, so you can, again, being a good negotiator, and salesperson, you can hammer up the final presentation or the concept presentation or the the big reveal, if you like for one of your presentations. And you can postpone it if the client hasn't paid you before the before the event. Okay? Again, you got to have these this payment structure agreed upon, in your in your meetings, you can talk about it, you can talk about what the what the key, the key dates are. Or if you're going you're doing the subscription billing,
you discuss it, you agree it your shake hands, off you go. So communication really is I think the key here for avoiding late payments, prevention is better than cure. Let me know how you get on with all of these hope that's been useful. Take care. And that's a wrap. And one more thing. If you haven't already, please do head on over to iTunes or Spotify. And leave us a review. We'd love to read your name out here on the show. And we'd love to get your feedback. And we'd love to hear what it is that you'd like to see more of and what you love about the show already. This episode is sponsored by Smart practice, business of architectures flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com Or if you want to speak directly to one of our advisors about how we might be able to help you please follow the link in the information. The views expressed on this show by my guests do not represent those of the hosts and I make no representation promise guarantee pledge warranty, contract, bond or commitment except to help you the unstoppable
