How to Avoid Deadbeat Clients

Some months ago I wrote a long post on how to get paid for your work as a freelancer. It went something like this:

As freelancers, virtual assistants take a risk on each client they sign up and each project they accept. Part of it is not being 100% sure whether a client is going to pay on time, if at all. And so  an exciting new opportunity for long-term work turns into hundreds of dollars in unpaid invoices, a follow-up headache and a cash-flow nightmare. The only way to avoid this situation for sure – asking for an upfront payment for the entire project – is neither reasonable nor practical. However, there are other ways to minimize your chances of getting screwed.

Let me tell you this – writing about a hypothetical situation is a lot easier than dealing with an actual problem. But I bet you know this already (and now so do I).

I recently found myself in exactly this situation – cash-flow nightmare and all. Except the grand total of the outstanding invoices is a few thousand dollars. How did it get this far? Didn’t I follow my own advice:

Start with conducting some basic research about your prospective client.

I sure did that. Actually, the client came highly recommended by someone who I trusted and still trust. The website looked legit – e-mail, phone number, physical address; The client also had an established affiliate program. Sure, there were several complaints about this client on consumer forums, but that’s why they needed me – to manage their online reputation and address online complaints. I e-mailed the owner and spoke with him on the phone a few times.

 

ALWAYS sign a contract for any size project. And by always, I mean NO EXCEPTION, NO EXCUSES, ANY and ALL projects, unless of course you don’t care if you get paid. Of course, some projects are too small to warrant a full-blown contract agreement.

We signed an agreement that, among other things, detailed payment terms and conditions. And 6 months later this agreement was reviewed, amended to include my expanding responsibilities, and signed and counter-signed.

 

To protect yourself against a deadbeat client, consider requesting a downpayment for your work as a percentage of the estimated total amount due.

Here’s where I screwed up. I didn’t ask for any downpayment or a retainer… The truth is, I was absolutely desperate and in terrible financial shape. Things were so bad that my husband and I put our house up for sale (and we LOVE our house). When this client contacted me with a long-term 20 hours per week contract offer, I was too afraid to miss this opportunity. As a result, I didn’t even ask for a retainer…

To make the matters worse, I was to invoice the client at the end of each month and the payment terms were Net30. This, of course, meant that I wouldn’t get my first invoice paid until 60 days after I started working. I asked if it was possible to change invoice frequency and/or change payment terms to Net15. Both requests were declined since “that’s just not how their accounting was set up”.

 

Sometimes, even with all the contractual safeguards in place, your invoice will go past its due date… If it’s only been 3-5 days, e-mail the client again with a copy of your invoice as a reminder… If you still don’t get paid in another week, fax your client a copy of the invoice along with a reminder note…  Another week goes by and still no check in your mail? Time to call the client… Finally, if your invoice is a month or more past due, send your client a letter (with confirmation of delivery) reminding of their payment obligation and politely promising to take actions against them if the situation is not resolved.

It sure did… Actually, back in December the client informed all vendors that there would be a payment delay for January and possibly February invoices. They also said that the issue will be resolved by end of February and everything was going to be back on track by March. And so I waited patiently… and waited… and waited some more… All the while I kept putting in 20 hours a week of billable time and submitting all DELIVERABLES! February came and went and so did March. Sometime in April I got partial payment against the January invoice.

All the while, I kept e-mailing the client every couple of weeks asking when will their situation be resolved. The standard answer was “another couple of weeks at the longest”. At some point, the client must’ve gotten tired of my inquiries because they sent me an e-mail saying that even though they are very happy with me, if I keep being so “inflexible”, they will have to replace me with another vendor. BIG RED FLAG!!! And I still kept on working for these guys.

In May I told them that I would have to cut my hours to no more than 10 hours a week until they catch up with the payments. Can you believe this naivete?!

Finally, a few days ago I sent them an e-mail informing that I will not do any further work until they pay up. The response? Yeah, sorry, but we are still having problems and even when we solve them, we’ll have to pay some other guys first.

The next step in my old post was to “politely inform client of the steps you will take to collect on your debt, such as contacting client’s local chamber of commerce, filing a lawsuite (or hiring a lawyer), hiring a debt collector, filing complaint with the local Better Business Bureau.

And this is the stage I’m at now… Unpleasant… But here are some great lessons I learned from this experience:

• NEVER get a client out of desperation!

• Always require a deposit or a retainer payment!

• If contract terms are unfavorable (such as Net30 payment terms, etc) – negotiate, don’t just settle for what’s being offered.

• If client is more than a week or two late paying their invoice, freeze ALL work on the project until they resume (and catch up with) payments.

• If the client expresses dissatisfaction over your payment reminders and hints in any way that you should be “more flexible” – GET PAID and GET OUT!

Have you had a situations like this when your client did not pay on time and/or tried to avoid paying altogether. Did you get your money back? If yes, how did you do it?

UPDATE

I got paid in FULL! Here’s exactly what I did – I stopped being overly accomodating. Since none of my hints, payment reminders or inquiries worked, I sent a short e-mail in which I demanded to be paid by end of day on June 12, 2009. I also made it very clear what would happen if the client didn’t comply with my request:

Unless I receive full payment for all outstanding invoices within 5 business days, I will contact the following agencies:

• Federal Trade Commission
• Better Business Bureau
• Attorney Generals offices in NC (my state of residence) and CA (client’s state)

I will further retain the services of a collection agency to recover the payments.

On Day 3 I got an e-mail informing me that the payment was initiated and on Day 5 – another e-mail letting me know that the money were sent to my account.

Technorati Tags: virtual assistant, outsourcing, freelancer

Related posts:

1. Don’t Sign That Subcontract Agreement
2. Virtual Assistants Add Value to Client’s Business
3. 10 Signs You Need a Virtual Assistant