This week’s inquiry comes from Joseph H. Davidson:

Jeff:

I am a big fan of Jeff’s On Call! and also an owner of your Fee Collection Guide. I work at a boutique size firm, primarily with hospitals, and place senior and executive leadership at those facilities. Last year, I was retained to find a CFO for a new client. Here is the series of events, timetable, and my question(s):

• Client signs contract and pays 20K retainer, with remaining 2/3′s  to be paid upon completion of search.
• 45 days later, CFO successfully placed.
• We invoice our fee, 25% of 250K = $62,500 – 20K retainer = balance of $42,500.
• Client doesn’t pay and makes me chase them for months.
• Client, after substantial delay, asks that balance be paid in two installments and cuts check for $21,250.
• Within 90 days of writing check, client declares Chapter 7 bankruptcy. The last third of the fee is not paid to my firm.
• Meanwhile, the CFO collects 24 Million in active accounts receivable management over the 4 months he is employed. What a success!
• Six months later, a bankruptcy trustee writes to us and demands the 2nd third of our fee back because it was a “preferential” payment.
• We negotiate the trustee from $21,500. down to $7500. and “settle.”

Since the candidate was successfully placed, stayed well through the guarantee period, and made our client a lot of money, how do you explain how a $62,500 fee turns into a $34,000 fee? I’m told that this is a typical issue of “preference,” and that the “ordinary course of business” argument is not applicable here. What steps could we have taken to ensure payment of our entire fee?

Thanks for your reply.

Signed,

Joseph H. Davidson