Put it in writing, handshake or oral agreements do not work.

I recently visited a business with twenty years of successful history, doing much of the business on a “handshake” with an occasional contract typically provided by the other party. This worked for years he said and now as we attempt to collect over a half million dollars from a hand full of different contractors, he reluctantly admits it does not work anymore.

So what is it that’s going on, are people becoming crooks? Are they purposely taking unfair advantage of sub contractors who do the work and rely on a mans word and handshake, who then refuses or fails to pay them for some trumped up reason? Is there a trend for “misunderstandings”, “broken communications”, “changing intervening circumstances”, which somehow makes it ok to break ones word and change the deal after the fact?

I believe the reasons for this happening are probably irrelevant, what is important is the fact that this frequently occurs and its possible to reduce and control this problem, although far more difficult to eliminate it all together, although possible.

Here is something we all know, that works well in protecting ones interests, reduce every agreement to a written contract. It does not have to be an expensive and lengthy proposition involving lawyers every time. Probably your work relationships are similar in nature thus having a lawyer draft an all purpose contract which you can use over and over changing the facts but not the format will work well enough. Even a simple self serving memo outlining who does what for what compensation and what terms is adequate to work from and protect our rights, even if it is unsigned by the other party. Its still a memo outlining what you believe the agreement to be at the time it was made.

This clarifies forgotten details, unstated terms and conditions, price, etc. etc. Its a simple but important act of business preparation and irrespective of why the problem exists, the best way to prevent many issues from arising is to have a written contract or at least a memo of understanding signed by both parties or as a final strategy, a self serving memo drafted by you, (see other blog entry here on the subject) to state the critical details of the deal. It amazed me how much business is done without a contract or written agreement or any written document that outlines commitments and terms. No wonder people end up with different perceptions of what was agreed on.

This may have worked in the past but it is no longer a viable way to do business, it just does not work now. Everything should be reduced to a writen document, everything by contract, especially change orders and adjustments to the original deal.

Stop work and create a written document. Do not proceed until all the details are agreed on, especially price and terms and specific obligations, in a written document and signed by both parties.

There can be no exceptions as once made that will be the business deal you do not get paid on. Contract first, change order first, terms and conditions and specific obligations in detail.

That’s the only way to do business, it keeps honest mistakes from occurring, it prevents simple mis communications , it clarifies issues, it makes certain there are no misunderstandings for any reason. It makes certain both parties are in agreement of basic  facts.

Unfortunately a dishonest business man will not be controlled by a written agreement as he will find a way to dispute something indisputable. How to protect against this? A written agreement removed wiggle room and allows for more aggressive collection and possible recovery, without it your case is lost before you start.

Be careful with whom you do business with, check history and references, limit your risk to affordable losses if all goes bad, and do not let the debt grow uncomfortably and unaffordably large.

Then when confronting default jump on it as quickly as possible with counsel, not a collection agency and not many months later. Respect your terms and if its net thirty on the thirty first day you need to be in contact and determining if its a collection problem, and if so go directly to your lawyer and resolve it. This does not mean you cannot work it out with your client as long as you are attending to the issue. Hopefully you have added costs of collection to your invoicing and contracts so your contractor will be paying for the lawyers not you.

The sooner you act the safer your receivable and the most likely you will be paid.

If your business requires such exposure then internal organizational strategies should be considered. In NY City each cab is separately incorporated because of the high risk and likelihood of an accident and ensuing law suit thus only one cab and its medallion is exposed to risk, as an example, although one owner may own a thousand cabs and a thousand medallions. Extreme but realistic.

This may not be the best strategy for you but some attention must be paid to limiting, controlling and absorbing exposure and potential losses.

Put it in writing, and then collect aggressively and promptly, know who you are doing business with and limit or control your losses. Call for help 413-549-2966.