NOTE: If you’re thinking about starting your own construction contracting business or are having trouble with one that you’re already running, this book has been written for you. If you are doing well as a contractor and want to do even better, this book has also been written for you. It covers the different aspects of running a small contracting company.
However, if you want to short cut to a major problem of many small contractors – not enough customers, please contact me at HappyContractor.com. This company helps get you more customers from the Internet. I’ve been an electrical contractor in Los Angeles for over 30 years and now run a 25-person company. That’s how I happened to write this book and to start HappyContractor.com — to help other contractors in all the trades make it despite the challenges of contracting.
CHAPTER 8 — COLLECTING MONEY IN A SMALL BUSINESS–CUSTOMER HONESTY
The fact that a customer has broken a pay agreement with you does not mean that he is completely dishonest. But, he is probably somewhat dishonest. For our purposes here, let’s define an “honest customer” as a customer that takes complete responsibility for making what he says come true.
Using this definition, if an honest customer makes a pay agreement with you, you can rely on that customer paying you exactly when he said he would. In an extreme case, say if his bookkeeper told him that he had ten thousand dollars in his bank account when he actually had only one thousand, if he found out that he had accidentally bounced a check on you, he would want to fix that problem immediately. He would be very agreeable to your coming over to pick up another check right away. He might even offer to bring it over to you.
Compare this with the CUSTOMER WHO IS NOT RESPONSIBLE. He will be glad to explain why the check bounced, and how bad the accountant is, and how it isn’t his fault. But, he will not immediately take whatever measures are necessary to get you paid. As a matter of fact, in the case of the CUSTOMER WHO IS NOT RESPONSIBLE, how do you know that the accountant actually did make a mistake? Remember: JUDGE NOT BY WHAT A CUSTOMER SAYS BUT BY WHAT A CUSTOMER DOES.
You know that THE HONEST CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK did have a problem with his accountant, not because he sounded sincere when he explained why his check bounced, but then he immediately paid you. You can recognize an honest customer because what he says will turn out to be what he does. If what your customer says turns out not to be what he does, then he is something less than a completely honest customer.
THE HONESTY SCALE
When you are collecting money, there is a scale that you can use to measure the honesty of customers. Each level of the scale corresponds to one of the TYPES OF CUSTOMERS WHO HAVE NOT PAID YOU covered in the last chapter. It starts at the top with THE HONEST CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK and ends at the bottom with THE CRIMINAL.
The further down the scale you go, the less honest the customer is. Another way of looking at this is that the further down the scale you go, the more criminal the customer will be. Let’s take a look at each type of customer in terms of his honesty:
THE CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK This customer is very honest. Whatever the problem is, you don’t really need to put any pressure on him to collect your money; the customer will handle whatever the problem is and pay you as soon as he possibly can.
THE CUSTOMER WHO IS NOT RESPONSIBLE This customer is honest as long as it is convenient for him to be honest. As long as he has the money, he will pay you. But if he doesn’t have the money to cover all of his bills, you will need to make him want to pay you more than someone else.
Unlike an honest customer who really wants to pay you, THE CUSTOMER WHO IS NOT RESPONSIBLE will pay you only because he feels that he has to. If he can find an excuse not to pay you, he will do it every time. You cannot appeal to his sense of right and wrong; you must put enough pressure on him to make him want to pay you rather than not pay you.
THE TIME BANDIT The main difference between THE TIME BANDIT and THE CUSTOMER WHO IS NOT RESPONSIBLE is that THE TIME BANDIT is more calculating in his intention to not pay you. When he made the original pay agreement with you, he knew then that he was not going to pay you on time. He will be a little more sneaky and devious than THE CUSTOMER WHO IS NOT RESPONSIBLE.
So, he is a bit less honest or, shall we say, slightly more criminal. He will pay you when you make it more unpleasant for him not to pay you than to pay you. Since he finds it pretty unpleasant to pay you, you will need to put more pressure on him than any of the customers higher on this scale.
THE ACCUSING CUSTOMER Remember, any honest customer will expect and demand that you do a good job. What we are talking about here is a customer who is accusing you of doing a bad job when you actually did a good job. The reason that he is doing this is that he wants to put pressure on you to lower your price. This customer has gone way beyond merely avoiding having to pay you.
THE ACCUSING CUSTOMER has a policy of aggressively attacking and driving away people that he owes money to. In other words, THE ACCUSING CUSTOMER is trying to make it so unpleasant for you to collect your money that you give in and accept a less money or simply give up trying to collect any money at all. This kind of behavior is, of course, criminal. You are going to have to be extremely tough and resourceful if you expect to collect full payment from a customer like this.
THE LYING CUSTOMER The lying customer is just that; a customer who lies. People lie because they want to conceal the truth. In this case, the truth is that you are not going to get your money. THE ACCUSING CUSTOMER and the other kinds of customers further up the HONESTY SCALE are actually easier to collect from than THE LYING CUSTOMER. They may be somewhat criminal, but at least they have some sort of plan to handle the fact that they owe you money. If you can somehow get them to really want you to get paid, then they can probably figure out a way to do it.
THE LYING CUSTOMER is too far down the scale even for that. He is so incompetent that the only way he can handle people who demand money from him is to say whatever comes into his head at the moment. He just hopes that somehow they will believe him and go away.
The problem here is that, even if he desperately wanted to pay you, the lying customer is just too incompetent to figure out how to do it. You also can’t help him work out a plan to get you paid because he will never follow through with it.
It’s not impossible to collect from THE LYING CUSTOMER, but don’t expect him to help you in any way even if he wants to.
THE CRIMINAL THE CRIMINAL has decided that he is going to steal money from you. He tells you that if you do a job for him, he will give you a certain amount of money. You do the job for him. He doesn’t pay you. Basically, he has stolen your money. There is a difference between THE LYING CUSTOMER and THE CRIMINAL. The LYING CUSTOMER doesn’t give much thought to the fact that he won’t have the money when you finish the job, while the criminal planned from the beginning on not giving you some or all of your money. Appealing to the criminal’s better nature will never work; as far as you are concerned, he doesn’t have a better nature. The only way to handle a customer like this is through legal methods.
CHARACTERISTICS OF HONEST AND DISHONEST CUSTOMERS
Now let’s take a look at some of the characteristics of the honest customer and compare them to some of the characteristics of the dishonest customer.
THE HONEST CUSTOMER:
1. He is friendly.
2. He is competent.
3. He keeps agreements.
4. He is easy to communicate with.
5. You like him.
THE DISHONEST CUSTOMER:
1. He is not friendly.
2. He is not competent.
3. He does not keep agreements.
4. He is not easy to communicate with.
5. You don’t like him.
If you can remember a really good customer that you would love to do another job for, I’ll bet that he demonstrated the qualities of an honest customer. Now think of the worst customer you ever had. I’ll bet he had a lot of the characteristics of the dishonest customer.
One important thing to understand about the relative honesty of a customer is that while there is no absolutely honest or absolutely dishonest customer, some customers are definitely more honest than others. Also, a customer may be less honest in one way than he is in another. He may pay 100% of your bill but three weeks later than he promised or he may pay exactly on time but work out a way where he pays only 90% of the bill. He is not being completely straight with you, but in different ways.
Similarly, a customer may be friendly, but not very friendly. Or he may be friendly but not very competent. So, except in extreme cases, don’t expect your average customer to be completely friendly or completely unfriendly. He will usually be somewhere in between these two points. The same goes for the level of his competence, his ability to keep agreements, etc.
The way that you can judge the honesty of a customer is to decide how friendly, competent, able to keep his agreements, easy to communicate with, and likable the customer is. The more a customer has of these qualities, the more honest he will turn out to be. The less the customer demonstrates these qualities, the less honest he will be.
Does this seem like a terribly unscientific and perhaps unfair way to judge a customer? Could be. Of course, I’ve always felt that it’s terribly unfair not to get paid for work I’ve done. Using this method of evaluating the relative honesty of a customer has helped me to avoid many dishonest customers.
There is something that dishonest customers have in common. They will try to find a reason not to pay you. Just like the air in an automobile tire that is under great pressure and relentlessly trying to find even the tiniest crack from which to escape, so the dishonest customer works to locate any kind of excuse for not having to pay you what he owes. This is something that you must be aware of when you are trying to collect money from a dishonest customer.
Now, assuming that you have done a good job, so he can’t complain about that, what other reason can a dishonest customer find not to pay you?
Believe it or not, one of their most common excuses will be that you did something bad to him when you were trying to collect — after he was already late. This makes sense in a crazy kind of way. Since the job is now complete, the only thing left for him to complain about is how you handle collecting the money.
For this reason, you must be careful not to give him any opportunity to use anything you say or do as an excuse not to pay you. With this in mind, it is time to look in the next chapter at a list of rules regarding collecting.