Chapter 7 – Customer Collection System

You’ve worked hard and done a good job for the customer, and now it’s time to get paid.

Collecting the money from a customer can be easy or hard, simple or complex. But, there are many things you can do to make it simpler.

One of the main things that you need to keep in mind is that the time to start thinking about collecting the money for a job is not after you have finished the job, but before you have started the job. When you and the customer agree on what the price will be for a job, you must at that time also agree as to when you will be paid.

Now, assuming that you made an agreement with the customer that you would collect the money when you finished the job, and you have now finished the job, the customer should now pay your bill. Right? Right!

And, as long as you did make a pay agreement with the customer before you started the job and the customer is now satisfied with your work, the majority of customers will do exactly that. They will pay you what they owe you.

Unfortunately, there are some customers who will not simply pay their bill. To a greater or lesser degree, you will need to put some kind of pressure on these customers to get them to pay. Exactly how much pressure and what kind of pressure is the subject of this chapter.

There is an old saying that goes something like this:

All people are equal — some people are just more equal than others.

In the contracting business there is another saying:

All customers are honest — some customers are just more honest than others.

This happens to be true. For although it is a rare customer who actually considers himself dishonest, it is also a rare customer who is completely honest. Most customers fall somewhere between being completely honest and being completely dishonest.

Let me tell you what I mean by “honesty” as it applies to customers. When a customer is honest, he tells the truth. If he says that he will meet you at a certain time, he is there on time. If he says he will pay you a certain amount of money at a certain time, he pays you the money on time. If he tells you that the job will be ready for you to do on Tuesday, the job is ready for you to do on Tuesday.

Basically, if a customer is completely honest, anything that he tells you will turn out to be true, every time. Any customer like that is an extremely valuable customer. The more honest a customer is, the more reliable he is. If you can rely on what a customer says, then as long as you are able to make what you say come true, you will be able to organize the job easily, which will result in a high profit on the job.

A customer might be “honest” in many ways, but if he is unreliable in any way that affects your work or getting paid, the result will be the same as if he were dishonest. Let’s look at three examples of this:

A customer named Joe contracts with you to do a job. You do the job and he gives you a check. The check bounces. Joe tells you that a large check that someone else gave him was bad. So, when Joe put that bad check in his bank account to cover the check that he had written you, there was not enough money in his account to cover it.

Another customer named Sam contracts with you to do a job. You do the job and he gives you a check. The check bounces. He tells you that a large check that someone else gave him was bad. So, when he put it in his account to cover the check that he had written you, there was not enough money to cover it.

Another customer named Bill contracts with you to do a job. You do the job and he gives you a check. The check bounces. He tells you that a large check that someone else gave him was bad….

What is the difference between Joe, Sam, and Bill? In Joe’s case, he really did have someone give him a bad check which caused him to unintentionally write you a bad check. Sam, on the other hand, simply wrote you a bad check. He knew from the beginning that he didn’t have enough money in his account, but he was hoping that he would somehow cover the check that he wrote you before you tried to cash it.

And, then there’s Bill. Bill not only knew that the check he wrote you was bad, but that many checks that he had written other people were also bad. Bill, by the way, is planning on moving to another state in the very near future, and he won’t be leaving a forwarding address.

So there are differences between Joe, Sam, and Bill. Joe had every intention of paying you, Sam hoped that he would be able to pay you, and Bill had absolutely no intention of paying you. But the point is, in each case YOU HAVE NOT BEEN PAID.

All three of these customers agreed to pay you when you finished the job. But, in each case, you did not collect the money. As far as your bank account is concerned, these three customers are equally bad.

So, it doesn’t matter how “nice” or “honest” someone is if they don’t pay you. You still haven’t been paid.

At this point, all three customers have broken their pay agreements with you, so in one sense, they are equally “dishonest” customers. But in another sense, they are very different customers, and understanding these differences is very important to you if you want to collect your money.


All customers who break pay agreements with you are not the same. Here is a list of the kinds of customers who don’t keep pay agreements and the methods used to collect from them.

THE HONEST CUSTOMER WHO HAS RUN INTO A FINANCIAL SETBACK This customer is not a problem for you. Something happened to him that caused him to not be able to pay you exactly when he promised. Fortunately, this kind of customer won’t sleep well at night until he has paid you. Whatever the problem is, he is going to fix it very quickly, and you will be paid as soon as possible.

HOW TO HANDLE There’s really not anything that you need to do with a customer like this. He will explain the problem, he will apologize, and then he will tell you how and when he is going to pay you. It will be quite soon. What this customer tells you will happen almost always does happen, so when the time arrives that he said that he would pay you, he will, in fact, pay you. End of problem.

THE CUSTOMER WHO IS NOT RESPONSIBLE This customer hasn’t paid you yet because he “doesn’t have the money yet.” He doesn’t have the money yet because of one of a thousand reasons, but whatever the reason is that he gives you, the real reason is…that he is NOT RESPONSIBLE. Here are some “reasons” customers of this kind give you when they break a pay agreement with you:

I haven’t been paid yet (so I can’t pay you).

Somebody bounced a check on me (so I can’t pay you).

I thought I would have more money by now (so I can’t pay you).

The job cost more than I thought it would (so I can’t pay you).

I had to pay more money than I thought I would to someone else (so I can’t pay you).

I thought that I would have collected more money by now from my customers (so I can’t pay you).

I had an unexpected bill that I had to pay (so I can’t pay you).


HOW TO HANDLE This type of customer considers himself to be generally honest. It will do you no good to call him a liar and a thief. You may feel that he is a liar because he agreed to pay you, and then he broke his agreement. And you may feel that he is a thief because he got you to do work for him and then he didn’t pay you anything. But he has figured out why it “isn’t his fault” that he can’t pay you.

Somebody else didn’t pay him, so he can’t pay you. So, it’s not his fault. He knows that you have been lied to and stolen from, and he knows that this is a bad thing. The customer thinks of himself as good and honest; therefore, somebody else must be responsible for the fact that you haven’t been paid.

If you tell this kind of customer that he is a liar and a thief, he will get very upset with you because he knows that he is a good and honest person and that it “isn’t his fault.” If you show this customer that you are angry with him, he will feel that you are being unjustly mean and unfair with him. This kind of customer will use the fact that you are angry with him as a further excuse not to pay you. Now it is “your fault” that he doesn’t pay you, because you were “mean to him.”

There is a way to deal with customers like this. Here is what you do:





This kind of customer always has one. It may be long or short, interesting or boring. Hopefully it will be short and interesting because you must listen to all of it without interrupting him. These stories may start out differently, but they will all have the same ending — somebody did something bad to the customer and now he can’t pay you.


Agree with the customer that somebody did something bad to the customer. Don’t leave this step until you are absolutely sure that the customer knows that you are not upset with him for not keeping his pay agreement with you.


Point out to the customer that although it isn’t the customer’s fault, you also have had something bad happen to you; you haven’t been paid for the job yet. Give the customer a reason why you need the money as soon as possible — you have to pay your wholesale house bill, your workmen, your rent, whatever.

The purpose in this is not to justify how much your bill to the customer was, because your customer is not upset about the amount of the bill. What you are trying to do is demonstrate that you need the money as soon as possible.

Remember, it is very important that the customer understand that you are not blaming him for your lack of money (it’s somebody else’s fault, remember?). Work with the customer on how the two of you working as a team can figure out a plan that will get you paid. Do not leave this step until you are sure that the customer is feeling friendly toward you and truly wants you to get paid as soon as possible.


Ask the customer this question — SO, WHAT DO WE DO NOW ABOUT GETTING ME PAID? The customer will usually tell you that he will pay you as soon as he can. His answer will generally be in terms of how quickly he can collect money from somebody or he will mention some other resources that he may have in the near future which will make it possible for him to pay you.

Get the customer to commit to an exact date that the customer feels he will definitely have your money. If you can agree to wait until that date, then you are done for now.

The reason you need to get an exact date from the customer is that, often, the customer will not pay you by the date he figured that he would definitely be able to. If the date comes and goes, and the customer still does not pay you, it is time for you to go on to Step Five.


If, in Step Four, the customer was unable to come up with an exact date that you will definitely be paid by, or if the customer gave you a date but you have not been paid by that date, it is time to take the next step in collecting your money.

At this point, the customer will be aware that he is not really doing a good job of getting you paid. If you have done a good job on the earlier steps, the customer will usually be receptive to your suggestions on how to work it out so that you get paid.

Go over what resources the customer has now and will have in the future for paying you. If you are creative, you may find a way to work it out. Maybe he can pay you 25% of what he owes you each week for a month. The rule here is BE FRIENDLY AND BE CREATIVE. What you need to accomplish in this step is to end up with another agreement on when you will be paid the money that the customer owes you.

Once you have established an exact pay agreement, you are done with this step. Hopefully, the customer will keep this agreement. If he doesn’t, it’s time for Step Six. If you have set up an installment pay agreement and the customer has not made a payment on time, immediately move on to Step Six.


If you have gotten to this step and the customer has still not paid you, you are going to have to take stronger measures. At this point it is obvious that the customer has not been able to pay you even with your full cooperation and help.

Now you must take a more aggressive approach to this collection problem. Tell the customer that you understand his position, but that he must understand your position as well. You did a job for him, you have expenses as a result of doing the job, and you need the money he owes you to meet those expenses. It is now your turn to assign an exact date that the customer must pay you by.

If the customer hasn’t paid you by this date, call him once more and tell him that he has passed the date which you had assigned him. Ask him if there is any way he can pay this bill. If he has what you think is a workable idea, give him one more chance, but always get an exact pay agreement including the exact time when he will have paid you in full. If the customer doesn’t have any convincing new idea on how to pay you, or if that idea turns out not to work, you must move on to Step Seven.


Nothing you have said or done so far has gotten you paid. It is now time to tell the customer that you are sorry, but, because you have not been paid, you are going to have to take legal action.

The customer may plead with you to give him one more chance. If he seems sincere and you think that there is a possibility that he might actually pay you now, go ahead and give him his chance. Remember to make an exact pay agreement. If the customer fails to keep this agreement, or if he doesn’t offer any other suggestions on how to pay you when you tell him that you are going to take legal action, move on to Step Eight.


It is time to recruit other people to help you collect this money. There are several options open to you. What you do now also depends on what type of customer you are trying to collect money from. The two main divisions are customers with whom you contracted directly and general contractors (contractors who hired you to do work that someone else originally hired them to do).

If you have contracted directly with a customer, you have options:

A. Take him to court.

B. Turn him over to a collection agency.

C. Put a Mechanics Lien on the customer’s property (at least in the state of Calif., where I do business).

I am not an attorney, nor do I claim to know much about the law in the area of collections, so I am not qualified to give you any legal advice in this or any other legal matter. There are many different laws in each city, county, and state, so you will need to be sure to know them or hire someone else who does know them before you take any legal action against a customer. What I am about to say is only offered as general rules that I have found to hold true over the years regarding collections.

If there is a very fast and easy way to go to court to collect the money, like small claims court, do it, as long as you have very convincing proof in writing that can be quickly and easily understood by the judge.

Other than this one exception, just turn your collections over to the best collection agency that you can find. It will take as a fee a large percentage of what it collects; but, believe me, it will be a fee well-earned. Remember, you already spent lots of time and energy trying to collect from this customer before you turned him over to a collection agency, and you still weren’t able to collect. So, if the collection agency can get any money out of the customer, consider yourself lucky.

By the way, there is a way to avoid the cost of a collection agency. If it’s legal where you do business, you can put a statement in your written contract that the customer will pay any additional expenses arising out of the collection process ( aren’t you glad you have a signed contract with the customer now?). Now you can tack on the additional expense charged to collect the money, and you will get 100% of the original amount owed you.

While everything concerning regular customers holds true for general contractors, there may be an additional legal action possible against a general contractor. If the general contractor has a contractor’s license, he may also be required to have a bond. You should be able to get the name of his bond company from the governmental agency which issues the contractor’s licence.

Call up the bond company and explain that you want to file a claim on one of its contractors. It will send you forms to fill out and then, hopefully, will pay you.

If you feel the bond company should properly cover this bill and it’s dragging its feet, you may want to put on some pressure.

If the bond company says that it isn’t going to cover the contractor’s bad debt, it should be able to tell you the reason in a way that makes sense to you.

While collecting money from a bond company can be time consuming, it is not very complex. So, you probably can take this action without hiring an attorney.

Finally, if it’s legal in your area of business, you can put a lien on the customer’s property and just forget about it until the property is sold or re-financed, at which time you will be contacted by the escrow or loan company. They will usually offer to pay you what is owed. Helpful tip: Don’t sign over your lien rights UNTIL YOU HAVE BEEN PAID IN FULL.

Also, at least in my business area, you can add a hefty per-month interest rate to the original amount you lien the property for, which is nice.

Now let’s look at some other kinds of customers who don’t pay you and how to handle them.


This customer will tell you that he is happy with your work and that he wants to pay you. The reason this customer will give for not paying you is TIME. You are going to have to wait to get your money, and there is nothing that your customer can do about it. Here are some “reasons” that TIME BANDITS will give you for not keeping their pay agreements with you:

I forgot my checkbook (so you’ll have to wait to get paid).

My — (boss, secretary, office manager, controller, business manager, partner, husband, wife, etc.) — hasn’t (written, signed, approved, co-signed, printed, etc.) your check yet (so you’ll have to wait to get paid).

We haven’t gotten your check back from our main office yet (so you’ll have to wait to get paid).

I can’t find your bill — please send me another one (so you’ll have to wait to get paid).

TIME BANDITS would like you to believe that they are keeping their pay agreements with you. It is only a “misunderstanding” on your part if you think that you should have your money on the exact date or time that the customer originally agreed to pay you.

As an example of this, let’s suppose that a contractor has an agreement to get paid on the fifteenth of the month. The fifteenth comes and goes with no payment from the customer. So, the contractor calls up the customer and asks where his money is. The customer says that he submitted the contractor’s bill to his New York office two weeks ago and that the contractor should be getting a check “any time now.”

If the contractor reminds the customer that there was an exact agreement that the contractor would be paid on the fifteenth, the customer is liable to say that this was only an estimated time because the customer figured that it would take about two weeks for the home office to process the contractor’s check.

Basically, the contractor is being told that the customer has kept his pay agreement with the contractor, and that it is only a little time problem that has caused the contractor not to be paid. The customer’s solution is that the contractor should wait.

HOW TO HANDLE Often, customers like this will tell you that they have little or no control over some person or organization that is responsible for getting you paid. If he tells you this, you need to find out exactly who this person is and how to contact them. Once you do contact the person who is responsible for getting you paid, simply use the CUSTOMER COLLECTION SYSTEM outlined earlier in this chapter starting at Step Three.


This customer says that he doesn’t want to pay you because you have been bad. He claims that you were bad because:

You didn’t do what the customer wanted.

Your workmanship was poor.

You broke something.

You were late.

You were early.

Something that you did improperly cost him money.

You had a “bad attitude.”

Etc., etc., etc…

Now, the first thing that you need to do with a customer like this is be sure that you did do a good job. If you did, you are in a much better position to deal with him. What this kind of customer wants is a reduction in the price of the job, and if there is anything about the job that is not perfect, you are definitely going to hear about it.

If there is any justification for the complaints made by the customer, the fastest and easiest way to resolve the problem may be to simply fix the problem. Another way to resolve the customer’s complaints, perhaps the way the customer is hoping for, is to discount the price of the bill.

Remember, ten or twenty percent off a bill still leaves you most of the money. If you can’t come to some kind of agreement with the customer, you are likely to go to a lot of trouble to collect probably even less money from him later on. He is usually well aware of this fact, and he will use it against you when he is “bargaining” for a lower price.

So, you see, it doesn’t really matter if the customer’s claims are true or not. What really matters is that the customer wants to use the fact that it is hard to collect from him as a way to get you to lower your price.

If a contractor has done a bad job, even an honest customer will not want to pay a contractor. However, an honest customer will pay a contractor who quickly and cheerfully corrects the job.

It is different with THE ACCUSING CUSTOMER. It will be extremely difficult for the contractor to fix “damage,” whether real or imagined to the satisfaction of THE ACCUSING CUSTOMER. This kind of customer doesn’t really want the problem to be fixed. He wants there to be a problem so that he can justify a lower price.

HOW TO HANDLE If there truly is a problem with your work, before you do anything else, be sure to fix it. If the customer is still complaining and still doesn’t want to pay you, ask him what he thinks should happen now. At this point, you are doing the CUSTOMER COLLECTION SYSTEM, starting at Step Four.


There are customers out there who think that the best way for them to solve their problems is simply to lie. This is especially true when you are trying to collect money from them. Here are some examples of things that THE LYING CUSTOMER will tell you when he owes you money:

You never sent me a bill.

I lost your bill.

I already sent you a check a while ago.

I’ll send you a check tonight.

I have your check right here.

(And of course the all time favorite) The check is in the mail.

By the way, it’s really true; customers actually do tell you that THE CHECK IS IN THE MAIL. The question is, how do you tell when the customer is lying and when he is telling the truth? How do you know that the check isn’t in the mail?

The easiest way is to simply wait to see if the check arrives in the mail. If it doesn’t, the odds are at least 95% that the customer is lying.

Think about it — how often do you send something in the mail and it doesn’t arrive? Sure, it can happen, but what are the odds? So, if the odds are only 5% that your check was lost in the mail, the odds must be 95% that the customer is lying.

Still, the customer may be telling the truth. Here is a rule that you can use to see if a customer is telling you the truth:


In this case, what you could do is call up the customer and explain that you didn’t receive the check that he sent you. No matter what hesays, tell him that you would like him to cancel the original check and make out another one and that you would like to come pick it up rather than having him mail it. No matter what he says, if he does actually agree to your plan and he does give you a check, and the check does clear at the bank, then you have a truthful customer. If anything else happens where you don’t end up with the money, then you are dealing with THE LYING CUSTOMER.

There is both a good and a bad aspect to a customer lying. The bad thing about a customer lying is that you can’t rely on anything the customer says. This includes any pay agreements that the customer makes with you.

Fortunately, there is also a good thing about a customer lying. When a customer lies to you about paying your bill, he is almost always admitting that he agrees that he should pay you the money. This is a very important part of the collection process. Let’s look at an example of this.

A contractor calls up a customer and asks the customer where his money is. The customer tells the contractor that “the check was sent out yesterday.” Now, maybe it was or maybe it wasn’t, but since the customer told the contractor that he had already sent the check, the customer cannot now claim that he was dissatisfied with the contractor’s work or the amount of the contractors bill. If the customer was not satisfied, why did he send the check?

From that moment on, it can never be argued that the contractor doesn’t deserve the money. The only thing that now needs to be resolved is when the contractor is going to receive the money that he deserves.

Customers who lie have this in common — they try to avoid trouble by pretending something is other than what it is. And if they will tell you one lie, they will tell you many.

Once you have determined that you are dealing with THE LYING CUSTOMER, you must, first of all, decide that you can no longer believe what he says. I know that this sounds obvious, but THE LYING CUSTOMER can be very convincing. When a customer is talking about paying you money, you will be tempted to believe him even if he has lied to you several times in the past. What you must do is stop listening to what he is saying and start looking at what he is doing.

Also, since THE LYING CUSTOMER is usually lying because he wishes to avoid trouble, you can often collect your money from him by demonstrating that lying causes him more trouble than just paying you.

Often, this kind of customer owes money to other people as well, and he is not just lying to you, but also to the others. If this is the case and THE LYING CUSTOMER thinks that you will give him the most trouble, he will pay you first. If you rapidly and competently handle the customer as outlined below, you will have a good chance of being at the front of the line.

HOW TO HANDLE You handle a lying customer by starting at Step Four of the CUSTOMER COLLECTION SYSTEM. Remember to judge your decision as to when to move on to the next steps not by what the customer says, but only by what the customer actually does.


This kind of customer has no intention of ever paying you. His plan is to get you to do a job for him for no money, or sometimes, much less than the agreed-to price. Of course, he will not just come right out and say that his intention is to steal from you. What he will do is pretend to be one of the other types of customers that don’t keep their pay agreements. So, he will appear to be one of these other kinds of customers:






How do you tell the difference between one of these kinds of customers and THE CRIMINAL? Fortunately, you don’t have to.

Let’s take another look at a rule of collecting money from customers:


In this case, when you are using the CUSTOMER COLLECTION SYSTEM, it is not particularly necessary for you to identify what kind of customer you are dealing with including THE CRIMINAL. Just doing the steps one after another will handle any kind of customer there is. With this system, no matter what step you are on, the door is always left open for the customer to pay you. So, if you have gone through all the steps with a customer and he still hasn’t paid you, it doesn’t really matter whether or not a customer is “a criminal” or just too incompetent to come up with the money. The point is YOU HAVE NOT BEEN PAID. No matter what the customer says, what the customer did was not pay you.

So, by the time you get to the last step of the CUSTOMER COLLECTION SYSTEM, if a customer hasn’t paid you the money that you are owed, then that customer might as well be a criminal because he is certainly acting like one.

When a mugger points a gun at you and robs you of a hundred dollars, your relationship with him has caused you to get upset and loose one hundred dollars. When a customer doesn’t pay you the five hundred dollars that he owes you, your relationship with him has caused you to get upset and loose five hundred dollars.

Also, you will find that the customers that you have to take down to the lower steps of the CUSTOMER COLLECTION SYSTEM will all begin to have more and more in common with each other. They will take up lots and lots of your time. They will lie. They will break many, many agreements with you. They will be harder and harder to reach by phone, and when you do finally get to them, you will feel worse after talking with them than before. They will be extremely difficult to get specific information from. They will complain that you are bad in some way or in many ways. In short, you will find these customers very unpleasant to deal with.

When you find yourself with a customer who has broken a pay agreement with you and he starts acting like this, save yourself a lot of grief and go through the collection steps QUICKLY. As a matter of fact, the more unpleasant and difficult that you find the customer, the faster you should move down the steps of the CUSTOMER COLLECTION SYSTEM. Then, just turn the guy over to your collection company, lien his property, or take some other kind of legal action.

I’ve never been able to figure out if this kind of customer acts so obnoxious and unpleasant as a method of driving away bill collectors or if he is genuinely as repulsive as he seems. Maybe it’s a little of both. At any rate, the faster you are rid of this guy, the better.

Remember, the majority of customers will keep their pay agreements. That is because the majority of customers are basically honest. And it is only when a customer has not kept his original pay agreement that you need to use the CUSTOMER COLLECTION SYSTEM. So, as a general rule of thumb, the further down the steps you need to go with a customer in order to collect your money, the less honest that customer will turn out to be.