Hi Everyone,
I hope you’re all enjoying your spring weather. As always, I greatly appreciate your emails with stories and issues that are of unique interest. Let me walk you through a recent situation I received from one reader that perfectly illustrates how a very “successful collection outcome” turned into a collection problem.
A referral partner introduced a client to a tax resolution firm with whom he has had a long and friendly relationship. After a few years, the tax firm was ultimately successful in securing $2 million in Employee Retention Credit (ERC) funds, a COVID-era government program designed to reward companies for keeping employees on payroll.
The commission agreements were straightforward: the tax firm would earn a 20% fee based on the $2 million ($400,000), and the referral partner, in turn, would receive 35% of that fee ($140,000). Although the client got paid, neither the tax firm nor the referral partner has been paid their fees. The main reason given by the client is that the 20% fee charged by the tax firm is, in their view, “excessive.”
Under the agreement between the referral partner and the tax firm, payment to the referral partner is only contingent upon payment from the client. In this respect, the referral partner is in the same position as the tax firm. Both must wait to be paid.
The referral partner asked me for my advice, and below were my thoughts for his consideration:
- Take control of the communication – Since the referral partner knows both the client and the tax firm, he is well positioned to act as the intermediary between the two parties.
- Meet face to face – Although the referral partner is in Indiana and the client is in Arkansas, I recommend that, if possible, he meet the client in person. Face-to-face meetings often carry more impact than email, phone, or even Zoom meetings.
- Reset the discussion with the client – Assuming a meeting takes place, clearly explain the scope and complexity of the work involved in obtaining the ERC funds. The value delivered should be reinforced.
- Clarify the original agreement – Review what was agreed to upfront and remove any ambiguity around expectations.
- Evaluate ability vs. willingness to pay – Determine whether the issue is truly about the fee, or if the client is experiencing broader financial pressure. A pricing objection is often a cash flow problem in disguise.
- Be flexible—but structured – If full payment is not immediately possible, consider a reasonable discount or a short-term installment plan, but ensure that any agreement is clearly documented.
Within a very short period of time, if payment in part or in full is still not forthcoming, in view of the large amount at stake, I strongly recommended that the tax firm place the matter with a third-party collection agency or law firm that will be highly aggressive in trying to collect their fees.
I requested that the referral partner keep me informed of his progress so that we can adjust the strategy depending upon what the develops.
Hector
Hector the Collector is a credit, collection, and human resources advice column by Nancy Seiverd, President, CMI Credit Mediators Inc. Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
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