'Going Medieval' When Clients Don't Pay by Cliff Ennico on Creators.com

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'Going Medieval' When Clients Don't Pay

Whenever I want to increase my e-mail volume from readers, all I have to do is write a column about how to deal with deadbeat clients and customers. Last week's column on that topic generated more than 100 responses from readers across the country who have been mauled by problem clients.

It's no surprise that a lot of these e-mails were from extremely angry and frustrated people. Like I said last week, when you run your own business, nothing eats at your insides like clients who don't pay. Judging from the tone of them (one asked whether I knew anyone with Mafia connections who could help with his collection efforts!), I foresee a significant rise in the U.S. crime rate if I don't do a follow-up column pretty quickly.

Before you can collect an overdue account, you have to get the respect of the person who owes you money (preferably with a little fear thrown in for good measure). I'm not saying you have to be nasty or threatening, but if your debtors think you are a nice lady or gentleman who will wait for their money, they will be sure to put you at the very bottom of the priority pile. Here are some aggressive but legal ways to get your deadbeat clients' attention and convince them that you are a mean motor scooter and a bad go-getter who shouldn't be ignored or trifled with.

SEND A DEMAND LETTER. Have your attorney send the client a letter, with your invoices attached, demanding payment and threatening "to pursue any and all remedies at law or in equity" if payment isn't received by a certain date. If you know the client is low on cash, offer the client the opportunity to pay over time, but make it clear that any missed payment will lead directly to a lawsuit or other legal unpleasantness.

LIEN THE CLIENT'S PROPERTY. Make sure your retainer agreement (see last week's column) contains language giving you the right to claim "a lien or security interest" on the client's business assets if his account becomes seriously delinquent. An attorney will not charge more than one hour's fee to provide the necessary boilerplate. Then, when the client stops returning your phone calls:

— Go to the Web site of the secretary of state's office in the state where your client's business is located. To find this, type "(state) secretary of state" into your favorite Web search engine or "sos.state.(state abbreviation).us", which is almost always the Web site's URL.

— Find and download the state's form called UCC-1 financing statement.

— Fill out the form.

For "description of collateral," say "all assets and personal property of any kind or nature whatsoever, tangible or intangible, together with the proceeds and products thereof."

— Mail the form to the secretary of state's office, along with the required filing fee.

— Send a copy to the client, along with a cover letter telling him you will remove the financing statement from the state's records as soon as his account has become current.

This is a fairly aggressive collection tactic — banks and other creditors won't look kindly on a client who allows UCC liens to be filed against him — so I wouldn't do this without first sending a demand letter to the client and warning him that you will have no alternative but to slap a lien on his assets if he doesn't pay up. And make sure you're 100 percent in the right; filing a fraudulent UCC-1 financing statement can land you in some serious legal hot water.

LET THE CLIENT KNOW "THIS TIME, IT'S PERSONAL." If the client doesn't respond to a demand letter but still insists you are obligated to perform services under your contract with him, get a copy of a standard home mortgage document (you can download forms from all 50 states at www.uslegalforms.com), fill in the client's home address (this is easier to obtain online than one might think) and mail it to him, along with a letter saying, "Please be advised that in order to continue working for a client who is not paying invoices on time, I must have collateral for the additional fees and expenses. Please sign the attached document and return it to my attention at your earliest convenience."

WHEN ALL ELSE FAILS, TAKE THEM TO COURT. Learn how to file papers in small claims court, and do not be afraid to file suit if a client stonewalls you, even if the client is in another state. Be sure to send a copy of the lawsuit papers to every newspaper in the town or county where your deadbeat lives. For a free copy of my infamous article, "How to Survive Small Claims Court," go to my Web site at www.cliffennico.com or send me an e-mail.

And no, I don't know anyone with Mafia connections who can help your bad clients see the error of their ways … sorry. Some things you just gotta do yourself, know what I'm sayin'?

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series "Money Hunt." His latest books are "Small Business Survival Guide" (Adams Media, $12.95) and "The eBay Seller's Tax and Legal Answer Book" (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

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