What to do when a client drags out payment
When you are a freelancer or consultant (solopro), there are worse things than having no work to do.
Number one on the list is working hard but not getting paid.
So here are some tips to solve the problem.
Structure payment to get as much as possible up front or at least along the way. After you solve their problem and deliver the goods, you are just another creditor on their list.
How to do it
One effective strategy is to require full payment up front. When asked why, practitioners of this approach say, "It is our policy."
No debate, it's just policy.
Obviously, for a single-person business, policy doesn't require any vote or top-executive decision back at the office. An individual can change "policy" at will.
But calling it “policy” cuts off uncomfortable discussion.
Those who follow this path tend to be highly confident, ready to cut their losses and proceed to the next prospect.
They remind themselves it is better to have no work and to spend your time prospecting (for instance, telephoning) than it is to use up time, your most limited resource, to do work that doesn't pay on time and may never pay.
Sometimes the largest companies are the worst
A prospect may say it's not their policy to pay immediately. You see this most frequently in large companies with lots of rules and lots of prestige. Like U.S. auto manufacturers in the good old days.
Before the recession, big-company executives, when challenged by solopros awaiting payment, would laugh and say, “Well of course we're good for the money.” Then freelancers would end up waiting 60 to 90 days to get paid. I've heard stories of big companies refusing to pay after the work is done and forcing the individual to settle for 50 cents on the dollar. Simply because they can.
Some solopros add a penalty percentage for late payments. Bad idea unless you want to function as a financing company.
If clients are agreeable towards paying a penalty, they recast you as a source of capital for which they are paying interest. You loan them your fees and they pay when they’re good and ready. Seems totally legit to them since they are allowing the additional fees. No rush to pay if they don't mind 1.5% compound interest.
Postponing payment is now a financial decision, not theft. (Normally it is stealing when you take a service and don't pay for it.)
Do you have a contract?
If so, make them pay up under the terms of the contract. No more work until they pay. That includes free phone advice.
If there's no contract, demand money right now or turn your attention to work that will pay off.
Don't start a new project with an unreliable client until the last project is paid in full. With the next project, demand at least 50% (100% is better), paid up front.
They need help immediately? That's why Fed Ex offers overnight AM delivery.
They want to postdate the check? Doesn't work because you deposit within an hour of the check arriving.
Let them know you are ready to walk. If they are desperate they will find the money. Let the other creditors wait.
You may be saying that if you get tough, it will ruin your relationship with them. A relationship where the client doesn't pay reliably IS a ruined relationship. You don't want to work for someone like that.
I once had a bad feeling about a client for which I had completed a project. I phoned them every single day until they put the check in the mail. They had more important creditors I'm sure but I was the biggest annoyance. In this case the squeaky wheel got the grease.
You may think that small claims court is the answer. I don’t know about that, I’ve never been to small claims court. I simply knew that what I was owed (perhaps $2500) would not be a big deal to the courts or to an attorney; legal fees could eat up the full amount. While I could perhaps learn to represent myself in small claims, the aggravation would consume too much of my energy and attention. So I aggravated them instead.
Much of what appears above in this article is theoretical. I’ve never had a slow paying client return to me for further work after I’ve objected.
I’m not sure whether it is their awkwardness or my proven irritability that closes down the relationship, but I’ve never cared enough to ask.
Originally posted 8-30-09