How To Get Paid In a Timely Manner (And Keep Your Consulting Gigs Professional, Too)

In May, Carla Stewart, LCPC, NCC from Flossmoor, Illinois left the following comment on my post, When Parents (and Other Third Parties) Won’t Pay for Your Services.

I find myself with a different, yet related dilemma. I don’t really have this issue with clients that come into my office, but with my mental health consultation contracts. Generally I bill once a month at the end of the month which means I am paid at the end of the next month (standard time frame). Because my contracts rely on federal and/or state funding, there are times when payment remittance goes beyond that next month. One site in particular was provided services in every month beginning in November, and I did not get my first check (partial) until April, and that was after I had to track them down.

My CFO [Chief Financial Officer] (who is also my husband) wanted to suspend services wayyyyyy before April until they paid the past due. Because my consultant contracts make up the bulk of my practice income, I did not want to have any time where I wasn’t working because that would impact future month’s payments. This is such a challenge for me, and I find myself being owed several thousands of dollars each and every month.”

Carla’s situation is common – especially for those of us who find ourselves in the entrepreneurial world for the first time. Consulting can be an excellent way to diversify your streams of income and I wrote a post on What to Include in Your Consulting Contract back in 2010.

However, what I didn’t address was the use of default clauses. Whether you are writing a contract to have your office re-roofed, you are hiring someone to speak as the keynote of an annual conference, or you are offering your own educational consulting services . . . every contract needs a default clause.

A default clause simply states what will happen if either party fails to comply with the contracted work.  For Carla, a default clause would address what would happen if / when the state / federal entities fail to pay for her services in a timely manner.  For a speaking gig, that clause might denote what is to occur if the service provider failed to show up and perform as scheduled; it would also address what is to occur if the host / organization cancelled the event.  And, for that re-roofing job, the contingencies might include things like a targeted job completion date and include clean up after the roofing job is finished.

When you are thinking about the consequences for failing to comply with a contractual agreement, certainly like Carla’s CFO suggests, suspension or termination of services is an option.  However, I would encourage you to get creative.  Those are not the only options.  Consider financial consequences, too.  For example, a late fee or penalty fee for every day that a project (or payment) is overdue can be a nice incentive to get stuff in on time!  I’ve used such clauses when I’ve contracted for other professionals’ services like my web designer and landscaping companies.  And, I’ve also been asked to agree to default clauses when I’ve been hired to present at professional conferences. It is only fair to expect that both parties do what they say they are going to do . . . and that there are consequences for failing to do so.

Carla, I am not an attorney so cannot provide legal advice to you.  However, it seems to me that revising your contract to include a default clause can protect both the financial health of your business and also the professional relationships that you are working hard to maintain.

I hope that others will contribute to this discussion by adding your own suggestions for Carla and others to consider.  I’m happy to learn from you even as I share what I know!