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First Write-Off

Written by: Jose Anes

Article Overview: Write offs are difficult to avoid. Most business, sooner or later, will see some expected income lost. Most of the time it is real loss, since you lost either billable hours or inventory. Although it is difficult to look at it in any good way, you may be able to find ways of making lemonade out of this lemmon.

First Write-Off

Business write off I mean - debts a client owes you but decides not to pay. I knew it would happen sooner or later. On this particular situation I almost knew it would happen, but I was just waiting for confirmation of the situation (and it arrived today). Fortunately, it was a small one. And it is difficult to find where the blame is, but either the client or the client client's is refusing to pay for a two-day gig, and I am the one who is ending up without its compensation.

What to do about this situations? Well, it is a difficult one. For starters, I already lost 2 days of precious time. Time transporting myself to a client (a terrible waste of unpaid time), and the hours doing the actual work. Spending a few more days in court may not be all that useful - this time, especially when there was no written contract yet (remember a verbal one is still valid in court, but more difficult to enforce). Besides, the client, full of guilt, has offered several other bigger contracts as 'guilt-relievers' (some of which have not been paid). It does leaves me thinking about many things:

• Don't take a contract at face value. Losses will happen. A face value contract of $1 is not $1 until many months after it has been paid. There could be payment issues, delays (inflation running at that time), expenses (which may not be paid), etc. Even if they do pay, you never know what kind of support you may have to do later.
• Pre-Sales Work. There is some pre-sales effort that is never paid. Sometimes a few days of unpaid work can bring a lot more. It is difficult to know where to draw the line. Had I had my choosing I would have offered a couple of hours of unpaid work, not two days. But I guess I was not the one choosing.
• Negotiate Guilt. Humans have a conscience. They may try to compensate you in other ways. If they do not try at first, one way of extracting some kind of payment is to negotiate something out of it. Another contract, a better, more formal process of doing business. With small clients you may be able to extract products or services as payment in kind. There is always a chance to use their guilt in your favor. Even if it is to extract a portion of what they should have paid anyways.
• Understand Your Client's Financial and Legal Framework. Due to the small size of this contract I didn't followed up with all the people I normally do. On bigger companies, there are so many people approving, pushing papers, adding initials that you have to learn how to coordinate them. Just to make things more interesting, they have multiple processes under which they work with my company. Some of them are easier than others. Some of them require hours and receipts accounting on convoluted web application screens, while others are so flexible they only require an invoice to be sent. Understanding is key. Following up makes it happen.
• Spread the risk. You do not want more than 50% of your business on a single customer. At this point I have around 5 main customers. But one of them (together with all of their underlying customers) make around 75% of my business. That has to be reduced a bit. Not by reducing the amount of work I do with big company but by increasing the others. A project by itself.

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Article Tags: confirmation, conscience, contracts, debts, face value, few days, gig, guilt, inflation, li li, losses, many things, pre sales, precious time, sales effort, starters, time time, ul, unpaid time, unpaid work



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