Possession is 9/10ths of the Law … Getting Paid 301
In Getting Paid 101 I talked about how to be pre-emptive and simply run your business in a way that helps (a lot) to make sure you get paid by delinquent clients. In Getting Paid 201 I talked about skip-tracing; or tracking down those fly-by-nighters that skip out on paying you.
Well, sometimes, you don’t get paid but you still have to do business with a company that owes you money.
It might be because they’re a significant portion of your revenue. And if they owe you a significant amount of money and you’re a significant supplier of theirs, it’s usually in your best interest to help them keep the ball rolling, generating revenue … so they can pay you!
This can be a very maddening situation so the first thing to do is get rid of all that emotion. Take a few minutes to yourself and cuss them out.
Good? Alright … moving forward, you have to play it smart and use your advantages. Here they are:
1. Hold Their Assets
“Possession is 9/10ths of the law” is an old decree that stems from Old English Law. Basically it means that if it’s in my hands, it’s up to you to prove it’s yours. In this case, if they owe you money, why would you give them their stuff.
So if you store goods or materials of theirs, or if you carry an inventory of items that are labeled with their brand or whatever, hang on to it. It has worth, so use it to bargain with.
Most of the time you can just tell them you’re hanging on to this collateral until they pay you. If you have to bring in the lawyers (and some industries have specific rules for this) you can put a lien on their property. What happens then is you hold on to it until they pay you. If they don’t pay you within a certain timeframe, you can sell their property at public auction.
Regardless, make sure you talk to your lawyer about your options when it comes to holding their assets.
2. Put Them on C.O.D.
They already owe you money. And you don’t want to get in any deeper than you already are. But you need to keep the business rolling.
This is where COD or “cash on delivery” comes in. The key to putting a customer on COD is to stick with it. No matter what. The longer it goes on, the more they’ll need something “right away” without you getting cash in hand first.
No payment, no delivery. Period. Call them up and tell them the order is on hold until you receive payment. If they need the order and they have the money, you’ll get a wire transfer or someone coming by with a check within a couple hours.
COD also offers a good opportunity to add a premium to your price. You can apply this premium to their outstanding balance (sort of a payment plan), but I generally just call it a price increase.
3. Get a Secured Promissory Note
When a business fails there’s a certain order as to who gets paid first. It goes like this:
- The government (taxes, fees, etc)
- Financial institutions (loans and lines of credit)
- Secured creditors
- Unsecured creditors
If the amount they owe you is significant, then really push to get a secured promissory note. A secured note is registered with a government body (talk to your lawyer) and it basically says they promise to pay you and they’re backing that promise up with collateral assets they own.
As a secured creditor, you’re one step up from the bottom of the totem pole and you’ll get paid before any unsecured creditors will.
So there you go. Hopefully you don’t run into too many situations where you don’t get paid. But it will happen. That’s business.
Fortunately, you’ve got a few more tools in your bag now to deal with it.