Optimizing your Billing and Collection Process

Business owners usually turn to lawyers when things go wrong. This probably isn’t the best approach – we think you should involve a lawyer in your business from the get-go. It might cost a bit, but this cost shies in comparison to a balance sheet full of overdue receivables, impending litigation costs, and the headaches of not seeing the money that you have earned. We at Falcon Law are firm believers in proactive lawyering and mitigating your risks from the outset.

Everything Begins and Ends with the Contract

If you provide certainty and clarity for your client in the contract, the more likely he is to understand his obligations to pay. Yes, sure – you can probably whip up a do-it-yourself contract and include a scope of work, payment schedule, a warning that the contract will be terminated for non-payment. Doesn’t every contract say this? Historically, you know that this has not been very convincing to your clients.  

For one, we think that your contract (for whatever industry that may be) should incentivize early payment and punish late payment. To achieve this, we recommend implementing strict terms of payment into the contract as follows:

1.     Invoices are to be paid within 7 days of issuance.

(include a 7-day grace period here, but this shouldn’t be written into the contract)   

2.     If invoices are not paid within 15 days of issuance of the invoice, a late fee is to be applied to the contract in the amount of $250.00.

3.     If invoices are not paid within 30 days of issuance of the invoice, interest is to accrue starting on the 30th day on the owed invoice at the rate of 2.5% calculated monthly.

4.     If invoices are not paid within 60 days of issuance of the invoice, a legal demand letter is to be served upon the debtor and costs of same are to be paid by the debtor.

Instead of merely including a payment schedule, clear terms such as the above (which is only an example) tell the client that you take on-time payment seriously. It tells the client that you have an internal procedure for managing invoices and that payments will not be accepted at the client’s discretion. In addition, it sends an early message that you are not afraid to take legal action.

Open Discussion

Be bold and upfront about contractual discussions (particularly payment) with your client. As important as it is to sell your services, it’s equally as important to explain your expectations of the client. If you’re seeing some hesitation from the client, this should raise some alarm bells. Take your time to vet your clients.

Your client says he understands the contract and doesn’t want to see a lawyer? Well maybe you should make it a requirement that he sees one and following that, provides you with a signed acknowledgement evidencing that he has received independent legal advice. At this point, it’ll be hard for him to argue that he was unsure of the terms of the contract.

Be sure to clearly establish a mode of payment for your client from the outset. Ask your client how he prefers to pay. Maybe you can incentivize him to pay a certain way? For instance, if he agrees to pay via a pre-authorized credit card within 7 days of issuance of an invoice – offer him a discount of 5%? This would be quite an incentive for a client to pay on time. Remember to include this into the main contract or a supplementary contract if the client does agree.

Automation and Systemization

In this day and age, if you’re not implementing some form automation for simple tasks such as invoicing you’re not doing yourself or your employees a favour. Your attention should be centred around the meat of your business and not the supplementary tasks. The internet is full of useful applications, usually costing you anywhere from $15 to $30 a month, which help you automate your invoicing procedures. These applications are usually compatible with your existing bookkeeping and/or accounting systems.

Dispute Resolution and Litigation

It’s too common when we see friends turned foes who are battling out in the courtroom. And at the end of it all – nobody ends up “winning”. Litigation is costly, uncertain, and as we like to call it “old-school”. While we understand that litigation is sometimes necessary, it’s in everybody’s best interests to reconcile early.

As we know, the longer an overdue payment lingers the less likely it is to reach your wallet. As such, it’s critical that once you’ve reached the 60-day mark (as in our example terms above) you or your lawyer send a demand letter setting out the client’s options, whether that be paying the invoices in full, setting up an alternate payment arrangement (spread out payment schedule, deferred payments, reduction of invoice amounts – important to include further contracts here to obligate your client), or litigation.

If you find that your business struggles to keep up with non-compliant clients and mountains of overdue payments, we recommend that you designate an individual or individuals in your office to oversee the billings and collections process. As are marketing, accounting, and human resources separate “wings” of your business, so should be billings and collections.

If your business could use some legal advice to optimize billings and collections, feel free to contact us at Falcon Law PC at info@falconlawyers.ca or (905) 866-7994.

Falcon Law PC

Raz Toor

*Electronically executed pursuant to the Electronic Commerce Act

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