I’ve been wanting to try out a blog feature for a while–Musical Mondays. I’m not sure how long this will last. This might be a first-and-last thing. We’ll just have to play it by ear. Sorry.
If You’ve Got the Money, I’ve Got the Time
If you are willing to pay to get work done, to bring you closer to a goal, to achieve a result or accomplish an objective, finding someone to perform services or supply you with goods is usually pretty easy. If you’ve got the money, someone has the time, or stuff, or skills, or whatever. What if you’re the person with the time, or stuff, or skills, or whatever, and the person who said they had the money actually fails to deliver? It happens more than it should.
Often, when someone gets “stiffed” on a job, they don’t have a good contract that governed the relationship between buyer and seller (or employer and independent contractor). By the way “contract” is in the term, “independent contractor,” people; so, that should be a clue that you should be using an actual, written contract. This can make it easier for you to get paid. Using a written contract will help you get paid, because the written contract will contain details you’ll need to prove in court when you sue the person who stiffed you for money damages to try to recover the benefit of your bargain.
Another thing that can help you–and a provision requiring this should be included in your written contract–is the right to withhold final delivery of whatever it is you’re delivering until payment has been made, or, in the case of a person rendering services, requirement that the person paying for the services fully fund an escrow account. The person funding the escrow account should be contractually obligated to leave the money in the escrow account until the job is done (and there should be a mechanism for freezing the funds in the event of a dispute). The person funding the escrow account should also be permitted, upon demonstrating that the work has not been performed (satisfactorily) after a reasonable period of time, to recover the funds paid into escrow. If the work is performed (satisfactorily), the person performing the services should be entitled to payment out of the escrow account in a timely fashion. This is, essentially, the way sites like eLance / oDesk / Upwork structure freelance service agreements.
By having a neutral third party hold the funds, and release them when the work is done (or refund them if it isn’t done or isn’t done correctly) can help you entirely avoid disputes and lawsuits as the result of nonpayment. If the escrow account isn’t funded, just don’t do the work! The disputes, if there are any, will largely be about whether the work was done correctly and whether or not the service provider is entitled to receive payment. Setting objective quantitative and qualitative standards for job completion will, however, minimize such disputes.
A good lawyer will be able to put all these elements into a well-drafted contract, which–as I have said–is something you really need to use. If you use a well-drafted contract, written by a lawyer, which contains all these things, expectations between buyer and seller are likely to be the same (or, at least, as closely aligned as can be). If you use escrow to fund payments for services, money will be available. Under circumstances, where everyone has the same expectations, money is available, and delivery of goods or services is made, it is extremely unlikely there will be a nonpayment event–especially one for which you would not be able to recover in a lawsuit.
As R.E.M. sings, everybody hurts… sometimes. That’s why we have laws like the Tennessee Consumer Protection Act or similar laws in other states, as well as federal consumer protection laws. Society tends to feel bad for people who can’t pay their bills, and nobody likes bill collectors bothering them–especially when they really are hurting and can’t pay their bills, despite wanting to.
The Federal Trade Commission (FTC) enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from debtors. The FTC makes efforts to prevent debt collectors from doing anything that amounts to “harassment;” from making “false statements;” from threatening debtors with arrest; from threatening debtors with wage garnishment, attachment or sale of property; or from taking legal action against a debtor, if doing so would be illegal or if they don’t really intend to take the action. Debt collectors also may not give false credit information about you to anyone, including a credit reporting company; send you anything that looks like an official document from a court or government agency if it isn’t; or use a false company name. Any other “unfair practices” listed in the FDCPA are also off the table.
So, being a debt collector can be a real pain in the ass. These guys do not have easy lives, especially if they attract the notice of the FTC. Is this as it should be? Well, to some degree, yes; although, businesses and entrepreneurs who provide goods and services do have a legitimate interest in being paid. Because it is so difficult to collect a debt, though, the best way to collect is before or at the time goods or services are rendered. Once the goods or services are delivered, if you haven’t collected your money, you might never find it cost-effective to be able to do so.
Finally, because I always make a big deal about having a written agreement, let me just say that you should put a provision in your contract which will entitle you to recover from the debtor the cost of collecting a debt from a debtor. Also, just file the damn lawsuit as soon as you can. Don’t threaten. Don’t “turn them over to collections.” Don’t give them a thousand warnings. They know they owe you the money. Be civil. Be polite. But just file the lawsuit, or write off the debt as a business loss. These days, debtors don’t take you seriously until they’ve been sued and you have actually won a judgment against them (probably because they’re so over-protected by Big Brother).
So, it should go without saying that you should never, ever do anything illegal to try to collect a debt. Certainly, you should never threaten anyone with physical violence. To boil it down to Rihanna terms: don’t go all “Like brrap, brrap, brrap,” in regards to people with whom you might have cause ask, “Who y’all think y’all frontin’ on?” That’s right. Street cred. I have it.
It’s important to make sure you discover, in advance, whether someone has the ability to pay, expressly establish their willingness to pay, and obtain their written agreement to pay (or, in the alternative, to pay you to collect the debt from them, if they force you to sue them to collect said debt). The reason one should do this ex ante, rather than ex post facto, is because if you wait until a debt exists, you might never be able to enjoy the benefit of the bargain you made. After all, it’s not like you can just go around bustin’ kneecaps and expect to get away with it.
If you need a lawyer to help you take preventive legal measures to ensure you get paid, before you get sideways with a potential debtor, please give us a call. We love helping businesses and entrepreneurs just like you get paid! You can reach us at (615) 669-6566 or through the quick, simple contact form on our website.