Legal issues (payment tools) and insurance

[walter]

Hello,

I am actually working on a business plan. One of its key factor of success is to get paid by clients after a sale: I am looking for legal tools/guarantees ensuring the company is paid after a sale. Does Anybody hear about such tools?

I would also like to know if there are any existing insurance protecting the manager of a company against trial risks?

Thanks in advance.
Walter

[walter]

Hello again,

Does anybody have a reply. I am looking desesperately for a smart solution but what I find for the moment is not relevant at all

Thanks in advance
Walter

PS : Is it the right place to post this message or maybe should I post this message in the financial forum?

[mnphysicist]

The best thing to start with is a rock solid contract, with provisions for late payment, penalties, and in some cases repercussions. Have your attorney go over it thoroughly so you don't break the law.

Next thing is to check out the creditworthiness of the customer, and the principals. If the company is shaky or a startup, then require a personal guarantee on the part of the principals and or make it COD.

Another thing is a security interest up front, or even better payment upfront. One scenarion I use for fixed bids is 30% upfront, 30% first milestone, 30% completion, and 10% as a bonus/penalty. Eg if its on time you get 5%, ahead of time 10%, late 0%.

Also its a good idea to figure that you will get shafted a certain percentage of time. According to a consultant friend, its a common practice now for big business to not pay the last invoice of the small business. They know its not cost effective for you to sue, and there is more than enough competition, for them to go on to the next guy in some industrys. As such, sometimes it makes sense to run the bid up assuming that you won't be paid on the last invoice.

As far as insurance..... its pretty much worthless, and can make you a target if the amount is high enough. A better investment would be a team of attorneys. Also, don't think that a corporation protects you every time in the event of a lawsuit. A good lawyer will pierce right through it, as such, you need better lawyers than the opposing side.

Ron

[eightmanagement]

Only GOOD insurance that I know to protect a manager against being sued is the retainer you pay to a good attorney.

Ron gives good advice, I see and bill using that scenario often.

[aangelica]

Hi Walter,

I just wanted to throw an option out to you regarding collecting on payments due by customers.

You might want to look into factoring loan companies. The factoring company gives you a certain amount of funds up front based on the total of your accounts receivable, and then they collect on the accounts directly. They look at the quality of these accounts; they usually won't take anything more than 90 days or even 60 days past due. The upside is the positive cash flow

The downside is that you don't get the full amount of the accounts receivable (however, most is better than nothing, and once you get to the 60 or 90-day mark, the likelihood that these clients will pay is reduced in many cases anyway).

Also, some of these companies can be rude during the collection process--if these are customers with whom you wish to maintain a good relationship and get repeat business, you can see where this can be a huge problem.

But there are some good factoring companies out there, and I have seen it work for several IT clients. In fact, it really saved their hide during cash flow crunches.

[eightmanagement]

Angelica, excellent suggestion but many of these companies are up to $10K in outstanding receivables before they'll call you back. It's unfair, but seems to be a trend. I've always called them Collection Firms (attorney's are venturing into this industry heavily now), but I remember Factoring loans from the CPA exam.

If you can find a company to take on your receivables, do it!!!! I started out in corporate collections and can tell you it wasn't fun ... take Angelica's advice and find someone else.

[hcat]

I agree - you should learn about factoring companies. Financing your invoices are a great way to work with your cashflow.

Factoring company information

Also if business is going well - you should learn about franchising
Franchise terms