Aloha Escape Artists!

E Komo Mai (Welcome)!

I’m about to get on a flight back to Hawaii to host some VIP Day Intensives.

It is too late now to book your VIP Day Intensive for this round, but you can check out my VIP Day Intensive Information page and see all the other locations I’m headed for the next few months.

You can even suggest one if you have a place in mind that you would love to meet for a full uninterrupted day to focus on you and the most important things in your business.

And if you don’t want to leave the comfort of your home, I completely understand.

I just started offering Skype Mini Intensives a few weeks ago and they are really popular.

It is just enough time to really dive into the big areas that are blocking you from earning your $5K to $10K+ months.

All the information for what I’ve mentioned here can be found below in the show note’s section.

This week we are talking profit recovery basics!

Which is not a very pleasant topic, but small business owners and solo-preneurs tend to just sweep this under the rug.

If you are running a real business and not a hobby, you must have a system for profit recovery.

You need to respect and protect yourself and your business.

If you haven’t figured it out yet, “profit recovery” is a nicer term for collections.

In over 15 years of running my own business, I’ve been really lucky and only had to deal with this once.

In fact, it was a situation just last week!

But I had no idea where to turn, and I don’t want you to be in the same spot I was.

So I did a ton of research and I’m sharing it this week.

Here Is What We’ll Be Covering About Profit Recovery Basics…

1.  Systems to have in place so that there is less of a chance for using a profit recovery system in the first place.

However, you need to know what to do when it does happen.

Notice I said “when” and not “if” because it most likely will happen if you are running a business where humans are involved.

2.  Some different options when it comes to profit recovery.

3.  What I personally recommend you do in this situation and the mindset around it.

No one is really talking about this part of being an entrepreneur or business owner, but it is a part of every business.

I guess I’m going to be the one to talk about it because I don’t want you to struggle on your own through this.

It is unsettling enough when this happens because you think you did something wrong.

Remember it is not you, they chose to default on a contract that they agreed to.

Let’s dive in…


Blog Post Article: “Profit Recovery Basics”

[Ep 90] Profit Recovery Basics with Erica Duran

Profit recovery (or better known as collections) is not a pleasant topic and I hope you never go through this.

But if you do, I want you to know the steps and where to turn.

I know you might not want to be seen as greedy or rude, but this isn’t really about you.

This is about protecting your livelihood and your business.

You can’t let people off the hook when they walk out on their commitments and what they contracted to do.

You held up your end of the bargain, right?

This is not a hobby.

There are hard and soft costs that are involved when you take on a new client in both money and time.

If you are a service based company, your time is a fixed asset and time spent can never be recovered.

If you did not receive full payment, chances are you gave the client a payment plan for their benefit, not yours.

Chances are the client, who is no longer willing to pay you, signed their agreement in bad faith, never intending to follow through.

When this happens to you, it wastes, even more, time because of the emotional response.

It’s natural to blame yourself when a client walks out of a payment agreement.

So let’s dive into all things profit recovery basics.

What You Should Have In Place To Prevent Contracts Going Into Default

Let’s start with trying to prevent an unpleasant situation of collections.

One, you should have a solid contract/client agreement in place that clearly states your refund policy.

When things go wrong in your business pull out your client agreement and add clauses to protect yourself in the future.

Don’t copy mine, but here is my refund policy at the time of this post: 

My Current Refund Policy:

Company does not offer refunds to ensure that the clients are fully committed to the coaching. Even if you choose, at some future point, to no longer participate in the program you will still owe the full amount in of your package investment. Even if you are removed from a group program for being disruptive, there are no refunds.  By signing below, you acknowledge that you are making a commitment to pay the full amount to the Company. If you fail to pay the full amount agreed to for your program, this matter will be turned over to a collection agency in an attempt to collect the debt.

Every single client reads and signs this before we start working together so there are no surprises and they can decide at that point if they want to invest in the support or not.

They are adults and make the decision.

I am not available for people that are not committed fully because I commit fully to my clients.

I also can’t have people disrupting the entire group experience for all the other members so I had to take a stand there and add that piece in.

Two, to tighten up in your business to prevent someone defaulting, is to screen better on your free consultations.

Really check in with yourself and see if this is the right client for you.

You might need the income for something and it may cause you to take someone on who is not ideal and is a complete energy drain.

But that is another whole other article!

Just listen to your gut.

There are always red flags to a nightmare client… especially when you look back with 20/20 hindsight.

Think of the most nightmare client you’ve experienced.

You probably had a funny feeling about them when they were on your free consultation call, or shortly after they enrolled, right?

There Are Two Types Of Clients That Stop Paying

Let’s go over the two types of clients that stop paying you.

The first type is still in communication with you and they are really trying to make it work but something changed in their income or lifestyle.

These clients still answer your emails and are not avoiding you on Facebook.

For clients that have not disappeared and still communicate with you, I would recommend working out perhaps a lower payment plan stretched over a longer period of time to help them through a tough spot.

Clearly, they really do have a financial challenge at the moment.

They are still in good communication with you and still want your service, so just make an adjustment.

The other type of client goes into hiding or starts coming up with random excuses why they didn’t make their last payment.

Sometimes, they don’t return your calls or emails.

If they do you’ll find they typically look for evidence to complain or act like they are confused about everything.

They may try to make it look like you are not doing your job or serving them anymore so that they have some sort of “proof” or reason to stop paying on their signed agreement.

You suspect they are really not confused but trying to wiggle out of something by claiming they didn’t understand the program or the guidance you are giving them.

Sometimes they just disappear.

You might be fully willing to work something out with them, but there is no way to communicate with them.

They just won’t respond.

Or, if they do, they are not responding with good faith to reconcile with you.

This is the type of client that I would suggest you turn over to a collection agency.

Don’t waste your time chasing them.

Don’t think up a bunch of drama in your head that you did something wrong.

Just turn their file over and let the professionals take it from here.

Move on and go find some more ideal clients to work with.

Special Note: 

Other things I think you should do with this type of clients is to remove them from your group program, remove them and maybe even block them on social media groups, revoke access to any shared Dropbox folders.  Remove them from anything that they should no longer have access to.  I also will block them on social media because I don’t want them crossing my mind anymore.

How Collection Agencies Get Paid

What most entrepreneurs don’t realize is that collection agencies usually work on contingency.

Meaning, if they don’t collect you don’t pay anything.

If they do collect, you’ll probably pay between 30-50%.

Which I think is a bargain!

The money is pretty much gone in my mind, so if I can recover anything I’m super happy!

And you don’t have to do any heavy lifting!

You literally hand over the file to the agency and you are pretty much done.

There is a chance that if some expenses get incurred for trying to track down the client there can be extra fees, but you’ll know in advance and you can approve them or not.

There are also some agencies that charge a small retainer like fee instead of the contingency.

What this means is that they will charge a relatively low fee on a monthly basis and you will pay less or even nothing if they collect from your client.

All you pay is the monthly fee and you can send in a certain number of cases.

I believe that this arrangement works best for higher volume companies than most service-based entrepreneurs.

However, as your needs change, you might want to opt for this regular monthly support.

Let’s say your group program starts really taking off and you have hundreds of people enrolling each month.

You’ll have a percentage that stops paying each month, so the monthly fee model might be a better financial decision for you.

How Collection Agencies Work

Typically, collection agencies work in two ways.

In the first scenario, the collection agency will send a series of letters to your client asking them to contact you so that you can work something out with your client.

This works great for those clients that disappear on you and are not being hostile.

Your client in this situation probably just is embarrassed that they can’t make the payment.

They are not angry and they would like to continue with you but they just can’t fulfill their end of the agreement at this time.

The goal here is to get the communication back so you can work something out.

I’m told that this works for about 80% of the types of collections out there.

The client wants to pay, but they have a priority on who gets paid on their end.

The second scenario is where the collection agency calls and/or sends letters and you are not involved anymore.

If your client decides to come out of hiding and take care of this they call the collection agency to work it out.

This is the route to take if your client is being hostile or delusional.

Getting Set Up With A Collection Agency

Getting set up with a collection agency is easier than you think.

You need to find a collection agency that operates in the country where your client is located.

I’ll list some down in the show notes.

You can also just Google to find one.

Contrary to what some believe, the client can’t opt out of collections because they are in another country.

You can Google for an agency that is international as well.

Don’t just cut your losses because you think this will be a big hassle!

No-Hassle Setup

Setting up a collection agency as part of your team is really no hassle at all.

You contact the agency for a free consultation.

They give you a username and password to an online portal.

You type in or upload your default client’s info and hit “submit”.

You are done!

Get back to serving your ideal clients.

When the agency collects, you’ll get paid minus their contingency percentage.

Note:

Some collection agencies have minimums and parameters to their willingness or ability to collect on accounts.  For example, the debt might need to be over $60 and the client must not be in bankruptcy as far as you know.

This is pretty much the basics of profit recovery.

I really hope you never have to go this route but I wanted you to know that it is available to you to protect yourself and your business.

It isn’t as scary as you think.

It isn’t a hassle at all – very minimal work on the part of the entrepreneur.

People have a lot of options before it gets to a collection situation.

So not such a nice topic, but I hope this serves you.

When/if you find yourself in this situation, you’ll be glad that you read this unpleasant topic and you’ll know what to do.


Pau Hana Escape Artists!

Work is done on this episode!

I hope this saves you a ton of panic and time in setting up your own structure in your business for profit recovery.

It isn’t a nice topic but it is necessary if you are running a real business and humans are your clients/customers.

When you take on a new client it is a big commitment on your time and energy.

I know I only take on about 10 private clients at a time, and when my roster is full I slow down the marketing so I can fully focus on my new clients.

Most of the work for most solo-preneurs is done upfront or in the first few weeks when you are studying and strategizing for your client.

So if your client doesn’t end up honoring their contract, that is space that was taken away from another potential client that you can’t refill now.

And, now you’ve done a lion’s share of the work and not receiving the compensation for it if your client decides to default.

You get what you are available for, so don’t be available for clients that don’t complete their contracts.

My opinion is again to not go into overwhelm or drama about it. 

Just systematically turn the file over to your “profit recovery” (collections) team and get out there and start creating fresh content and connecting with new ideal clients.

You need to respect and protect yourself and your business.

All the links and resources mentioned in this episode will below, so scroll down.

A hui ho! (Until we meet again!)

Sending you aloha.


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Key Resources, Tools & Links Mentioned In This Episode:

USA Based Collections Agency for Entrepreneurs:  Optio Solutions

Canada Based Collections Agency for Entrepreneurs:  Credit Bureau Services Canada

Erica’s Interview on the  Entrepreneur On Fire podcast

Club Ali’i Group Coaching & Mastermind

17Hats – Get 10% off your membership when you use promo code “ericaduran”

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Mahalo!

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