Chasing and managing payments can be a frustrating and time-consuming process. When clients fail to pay, turning to lawyers for assistance can be tempting. But lawyers can be expensive and often do not understand the recruitment industry.
So how do you avoid using lawyers in the first place? Here are nine tips to help you get it right and avoid expensive lawyer fees.
Tips for your consultants
- Send your ****ing terms!
Whether the client is an old mate, or you used to work with them, or they’re your brother-in-law, you MUST. Send. Them. Your. Terms! If you don’t, no lawyer in the world can enforce your terms. To be clear, putting reference to your terms at the bottom of your email signature does not count, this is unlikely to be enforceable.
2. Stop negotiating, start RE-negotiating.
Once your terms have been accepted, say by the hiring manager interviewing your candidates, HR might say that you are not on their approved supplier list therefore you have to work on our terms. At this point the language you use becomes vital. You must always make sure you remember those two little letters “RE”, ie renegotiating NOT negotiating.
If you say that you are negotiating terms, then that negotiation fails, a judge will only see it as that, a failed negotiation where terms have ultimately not been agreed. If, on the other hand, you make clear that you are REnegotiating then if that REnegotiation fails, then your continue to apply.
3. Don’t be afraid.
Or in other words, simplify your terms. Your recruiters are scared to talk about your terms because they don’t understand them. They were probably drafted by a lawyer a long time ago, using terminology that the recruiter doesn’t understand. And because they don’t understand them, they fear negotiating them. Pick a number of your salespeople, get them to pick a paragraph at random from your terms and ask them to explain it – this will demonstrate to you how little they understand them. Give your consultants training to understand the terms.
If the contracts are simple to understand, they can be used as a sales tool. If the hiring managers understand them then they will agree to the terms, without sending them to HR or Legal or Procurement where the whole process becomes unnecessarily protracted.
Tips For Your Terms
What follows are three clauses you should include in your terms to give you the best chance of getting paid.
- Conditional fee rebates
Or conditional free replacements. The fee rebates or free replacement happens when a placement fails within a specified time. It is essential that you tie conditions to these rebate or replacement guarantees. The conditions depend on certain actions being taken by the client. These conditions are:
- The client pays the bill on time.
- The client has notified you that they hired the candidate (ie, they don’t backdoor you)
- The client notifies you when the candidate hands in their notice or leaves.
2. Conditional fee discounts
Most terms include a penalty clause which states that the recruiter or agency charges 15% but if the client breaches the terms of the contract, the charge increases to 40%. This is very difficult to enforce even if it goes to court.
However, if you word the clause the other way round, i.e. “we charge 40% but will discount that to 15% on condition that you pay your bill on time etc”, this is fully enforceable as the 40% is the default charge.
3. Contractual costs indemnities
As a rule of thumb, if your average fee is less than £10,000 and you find you need to sue your client to get your money back and you use lawyers to do this, you won’t get the cost of the lawyer back. You’ll get the court fee, disbursements, and some small fixed fees but not the cost of the lawyer. This is because the process for anything under £10,000 should go through the small claims track which is designed for you not to use lawyers.
Even if you are dealing with amounts of £10,000-25,000 (fast track) or £25,000 and over (multi-track), you can recover your costs but you will only be granted about 65%.
A contractual cost indemnity means that you will contract out of the fixed cost rules for under £10,000 and when you’re in the fast and multi-track instead of being assessed at about 65% you’ll be assessed at about 85-90%
Tips for your finance/credit control teams
- Don’t Go Nuclear.
What often happens at recLAW is that we get a call from the recruiter who admits that they the first thing they did was phone the client and go ballistic, they’ve made threats and accusations and been generally angry and rude. All that the recruiter has achieved is a guarantee that the client will never want to work with you again.
You need to understand that dispute resolution is a sales process, litigation and sales are essentially the same things. They’ve got some objections or requirements that you need to understand and overcome in order to get the outcome you want. It might be budget constraints, they might agree the money is due but they don’t have or they need to spread the payment over time. The hiring manager might need to get the sign-off from someone higher up who is dragging their heels.
None of this means that you shouldn’t get paid, it just means that you need to understand their issues and work on how to overcome them.
2. Use Leverage.
The invoice is late, their rebate and conditional discount have gone, and you’ve now got the contractual costs and an interest clause in play. Use that to get paid, say to your client that, “you’re overdue, therefore you’ve lost the rebate and discount but if you can commit to paying within the next 48 hours I’ll get our directors to reinstate those benefits for you.” Give them a reason to pay.
You can also put the conditional fee discount on the invoice itself. Draft the invoice for the full 40% payment but underneath add in “Timely payment discount” at the 15% rate. This helps because the accounts payable team will not have seen your terms or any correspondence relating to that discount. Making this clear on the invoice itself makes sure that the finance team has the incentive to pay within your required timescale.
3. Payment Plans.
Particularly in the current market, the client often wants to pay the bill but can’t pay the bill. You should consider payment plans for your client. You can either be belligerent and they go bust and you lose all the money. Or you can agree on a plan to pay over a certain amount of weeks or months. They might still go bust but you will have received at least some of that money.
It’s important to ensure that payment plans are structured correctly. Specify the payments to be made and when. If you don’t and you do end up in court, you need to be able to show that you specified set amounts by set times. As with the conditions above, you need to have conditions, e.g. “If you miss a payment the rest of the contractual cost is due immediately”, in the payment plan.
By following these tips, recruiters can protect their businesses and avoid the high costs associated with legal action. Contact us at email@example.com for any further advice and for any of the resources mentioned above.