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44% of our members have had issues getting paid. They average over $10,000 in unpaid invoices, or 36 hours of work just to track down each missing payment. (A week of full-time work!)
Many of these nonpaying clients are serial, deadbeat, crook clients. But then there are well-intentioned nonpayers, who can’t pay for legit reasons. Your approach should be different. Read on for all we've learned about nonpaying clients, including tips from our founder Sara Horowitz’s book, The Freelancers Bible.
First things first: some glaring issues.
Why is nonpayment even an issue?
The main reason is that while companies that don’t pay their employees are criminally liable, no labor laws deter nonpaying clients.
If that wasn’t bad enough:
- Many freelancers work without contracts, which makes in almost impossible to take legal action
- Freelancers’ time is so precious they can’t even afford to spend the time to hunt down the money
- There are caps on how much you can collect in small claims court
- Most freelancers don’t understand how small claims court works, and choose to give up rather that put up a fight
- Many freelancers can’t afford to hire a lawyer
- Even if you win in court, trying to collect on the judgment costs more time and money.
This means that, like it or not, prevention is the best cure. There’s only so much you can do to get your money. Often it’ll cost you more to get the money, so it’s smarter to just suck it up.
Which feels like crap.
That’s why we’ve talked so frequently about how to avoid deadbeats or use “soft” tools to get your money back. But let’s break down who these deadbeats are, and how to talk to each of them.
Who are nonpaying clients?
There are basically four types of nonpaying clients:
1. Well-intentioned nonpayers. These clients have a reasonable explanation for not being able to pay on time. They explain their reasons in a clear way. In most cases, it’s about cash flow. They often say they can pay you on a certain day, one or two months later.
Instead of waiting for the one big payment, sometimes it’s best to suggest paying in small increments. This helps your cash flow. Suggest that they pay just 10% now, and 20% at the end of next month, etc. Then confirm the timetable in writing. Contact them the day before they’re scheduled to make the payment to confirm.
Speaking from experience, maintaining 100% transparent communication is the only way to save your relationship with the client.
Another option is to have a policy of always withholding copyright until the final project fee is delivered. So while you would deliver the final product, the client would not be able to make public your ad/website/art/etc. until you received payment. If they did, you would let them know that they’re violating your copyright. This gives you stronger leverage if it ever comes to a legal dispute. It also puts fire under them to get that payment to you!
2. Unhappy nonpayers. These clients are unhappy with your work or with you, and feel they must withhold (or reduce) payment until things are resolved.
If there was a true error on your part, apologize and work out an adjusted payment schedule. Think carefully about whether you should argue it out or just accept their suggested cut. If you want to work with this client again, it may make sense for you to take a hit now to preserve the relationship. There are a thousand tiny factors that would go into making this decision, but follow your gut.
If you underestimated the job and are suddenly dropping an invoice that is significantly higher than what you quoted into their inbox, you’re asking for trouble. If you didn’t warn the client that the final cost might be 10% or 20% higher than your quote, you have no post-delivery leverage.
Instead, you should work out an adjusted project proposal as soon as you see “scope creep” – when the scope of the project starts expanding. During the project, when a new item is added, simply say “Sure, I can do that. We’ll just have to revise the project proposal, that OK?” or “That may take a few extra hours of time. Is that OK?” Best to get that in writing, so that if the balk later, you can show their agreement. Lots happens during a project and it can be easy for the client to forget.
If the client is unhappy for unreasonable reasons, it may mean that there was a failure of communication. Here’s how to get back on track.
Sometimes you think your work is perfect, and the client thinks the work is unusable. In these cases, you often try to get someone you know to provide an opinion of the work, and the client finds someone who sides with them.
What you need is a neutral arbitration or mediation service. Often an arbitration clause names the organization that would handle arbitration, frequently the American Arbitration Association, JAMS (Judicial Arbitration and Mediation Services), or the National Arbitration Forum.
This is often preferable to small claims court for both you and your client.
3. Serial nonpayers. These are clients who have left a trail of stiffed freelancers in their wake. They’re the real crooks.
Most freelancers who have encountered a serial nonpayer got a hint that they were lousy from the beginning – but they didn’t trust their guts.
These are the kind of clients that get 1 star on our Client Scorecard – so if you’ve been stiffed, go right now and catalog them. Lots of freelancers search Client Scorecard before they take a gig.
4. Mega-corp nonpayers. These are big businesses who have 90 or 120-day pay cycles and leave you hanging for months – because they can. They set policies that are good for their cash flow, and know that there’s nothing you can really do about it.
In the recent recession, accountants actually speicifically advised their clients to put freelancers on a long payment cycle. They considered freelancers the bottom rung.
If you can negotiate a better pay cycle, great. But after the fact, not much you can do except nag your contact in accounting. Many freelancers deal with these kind of pay cycles by diversifying their portfolio and making sure that they’ve got smaller clients on shorter schedules.
How to get your money
Here are 7 remedies to combat lateness, annoyance, and issues. Again, you’ll see that prevention is the best remedy.
1. Have a payment policy. Negotiate a time limit. If there’s is 90 days and yours is 30, try to get 60.
2. Specify a late fee. This is not typically a lot of money – 1.5% interest per month on the overdue amount is common – but even a small fee can help give your client the psychological nudge they need to pay attention to the due date on an invoice.
3. Include “Dispute Resolution” terms in your contract. See more about arbitration in “Unhappy nonpayers” above. Here’s an example of an alternative dispute resolution clause.
This is especially important if you do a job outside of the state that you live in. You should include that the jurisdiction would be in your state/county – not in theirs. You don’t want to have to hire a lawyer in another state just to try to collect there.
4. Send your invoices promptly. Your invoices should:
- Be sent promptly after the project is finished. This is the time when your client has your success most at top-of-mind.
- Be sent in triplicate: snail mail, email, and a phone message. (You aren’t playing around.)
- Be dated.
- Include all the date for payment processing, so that there are no unnecessary delays.
- Reflect lateness (“Third Notice - 60 days past due”)
- Reflect late payment charges
5. Use an online invoicing and time tracking program. Check out one of these great apps for invoicing. I include this here not because it makes your life easier (it does), but when you have exact numbers documenting time spent for each task, along with dates for all of the invoices and deliverables, it’s hugely valuable if you ever do need to go to an arbitration service or to small claims court.
6. Have a follow-up system. Obviously, you could start friendly and get progressively more serious.
We’ve heard of freelancers who create an alter ego – someone who “works for her” – who inquires after late payments. This can help preserve a souring relationship.
Remember, it’s extremely important that you never get personal or harass the client. Don’t make threats or criticisms. There are strict policies about debt colletion, and you should comply fully to avoid any appearance of harassment, which could hurt you when you try to collect later.
Normally after you’ve tried strict emails & phone calls, you should go to an attorney. They can send a letter for you – which is a lot scarier for most clients than a letter from you. Sometimes a call from you lawyer is enough to kick them into high gear.
7. Last but not least, small claims court. If arbitration is not doesn’t work and it comes to that point, here’s all the information you need about small claims court.
In every state, there are different minimum and maximum sums of money you can collect in court. You’ll have to talk to a lawyer or review all the rules in your city/county/state.
What are your systems for getting paid? What are the most common types of nonpaying clients? Please share your thoughts – let’s help each other navigate this minefield.
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