Small, medium, or large, firms of every size should have a regular process in place for collection of their fees.
During the regular course of their business, design firms sometimes encounter issues where they have a significant account receivable pending with a client.
In some instances, the design firm writes the unpaid fees off as a loss. Sometimes, it agrees to a reduced amount but doesn’t receive anything in return. In other cases, the design firm continues to bill the client regularly without receiving any payments whatsoever. Some design firms have been involved in matters where invoices have been pending for so long that potential fee claims were barred by time restrictions.
Another common practice: A firm performs additional services after an issue occurred on a project for which they either did or did not bill the client. Sometimes, design work done as an additional service becomes part of a claim made against the design professional. Unfortunately, not billing for services rendered may be perceived by the client – and others should a dispute arise – as an admission of at least partial responsibility.
Given the time and effort invested in a project, design firms shouldn’t simply walk away from their receivables. Small, medium, or large, firms of every size should have a regular process in place for collection of their fees. This might involve the following measures:
- Follow up with the client regarding any outstanding invoices on a regular basis. This should be done professionally and in keeping with the contract.
- Document any reason for non-payment. If the client is not paying you, and provides a reason for the nonpayment, that reason should be documented in a follow-up email to the client. The message should be retained in a specific folder. This process should occur each time such an exchange takes place. Often, reasons cited change by the end of a project. So, when a client tells you the reason, simply confirm it in a short email so you have a history to dispute the new story, should that occur. This creates a record and prevents clients from changing their story.
- Assess interest on unpaid fees as stipulated in your contract. If your contract calls for interest on unpaid fees, assess it regularly. This has been put in the contract, agreed to, and is in there for a reason. It also can be negotiated away if you are inclined to do so later. However, it is harder to make a case in any negotiation over payment for if you have not included the interest charges in your invoices.
- Don’t overlook charging for additional services. You are entitled to be paid for your designs, especially when the reason for a redesign is unclear. If you provide it at no charge, a “fact finder” (often a person outside the industry) will not understand that you did it for the good of the project. The contractor undoubtedly will have submitted a change order. If you’ve done the design for free, it may be assumed that the absence of a charge was from a sense of responsibility.
Unbilled work, a potential disadvantage in disputes. Keep in mind, other professionals do not provide services for free. Furthermore, nearly every judge, juror, or even arbitrator has had experience with other professionals. Yet only a handful of them may have experience with the design community.
While a design professional may recognize the reluctance to charge for additional services as a common practice, a fact finder won’t hold the same view. When work is performed without compensation, it is hard to convince an objective outsider that your firm didn’t have responsibility for the issue. Designers are problem solvers and strive to help solve problems. Nonetheless, firms should be paid for services that lead to that resolution.
In deciding whether to bill for additional services, design firms might consider how their billing practices might affect the perception of their firm. Generally, clients treat designers differently who ask for payment professionally and in keeping with the contract. These firms become less of a natural target should problems arise, because a mutual respect has been created.
Documenting amounts due is helpful in claim resolution. Billing for all services rendered and documenting amounts due are also critical should a claim arise. Notably, creating the paper (or email) trail helps establish that the money owed your firm is indisputable. There are various exclusions related to fees in your professional liability insurance policy. However, if it is clear from documented correspondence that the client agreed the money is owed during the project, then if a claim is made it becomes easier to argue that a waiver of fees due should be part of the settlement agreement and count as indemnity dollars against the deductible.
While there are no guarantees fees waived will be honored by the carrier as “real” contribution, documentation strengthens the argument that they should be treated accordingly. This reduces the likelihood your firm will have to both pay its deductible and contribute the unpaid fees as part of a claim settlement. Alternatively, if the carrier won’t consider this, it makes for a much stronger case for an exchange of checks at the settlement.
Finally, design firms should avoid compromising a fee without getting something in return. If a client wants you to write off part of your fee, get an agreement with them that ends your relationship and settles all known issues to date. It can be an informal release that sets the terms of the agreement (technically, a settlement) and can protect you from becoming involved in frivolous litigation in the future.
If the amount in controversy is large enough, you may want to involve your carrier or consult a lawyer regarding language. Ask them to make sure the document is simple and free of legal jargon. It should indicate that all parties agree that the fee forgiven is the final resolution of all known issues on the project.
Lauren Rhodes Martin is a risk manager and claims specialist at Ames & Gough. She can be reached at lmartin@amesgough.com.
