What do you do when you a client refuses to pay you? According to Freelancers Union nearly 50% of freelancers were stiffed by clients in the past 12 months. Freelancers reported spending an average of 36 hours chasing payments from clients who had agreed to pay but didn’t.
One of the banes of the freelance experience is the is the problem client who does not pay for what they order. Even with a contracted relationship in place, there is no guarantee that a client will follow through as agreed. Sometimes the client can’t pay. Sometimes they won’t pay. Sometimes they think they’ve paid but haven’t. No matter the reason, the freelancer is charged with taking the time to collect or is out the money — which is a waste of time and effort.
A related issue is that the client will want the designer to meet their deadline for the project but then takes 30, 60, 90 days or more to pay for the work. So what do you do when a client goes on 90-day payment terms but you are obligated to pay your obligations on a 30-day cycle?
I like working with a safety net. I like starting a job knowing that I’m going to be able to pay my bills and put food on my table while I’m working on a client project. Clients who don’t pay jeopardize my livelihood and my ability to serve them and other clients to the best of my ability.
Back-end options for getting paid
Factoring Services. Some freelancers use factoring services in which they invoice through the factoring company and receive 70 to 90% of the invoice amount. The factoring company then pursues the client for payment of the full amount and takes the 10%-30% as their fee. Factoring allows the freelancer to be paid right away. Many think it’s worth the 10%-30% fee in order to make that happen.
A downside of invoice factoring is that the service usually requires handling of all the freelancer’s invoices. If you decide to use invoice factoring, shop around and choose a factoring service wisely. Don’t become obligated to a service without vetting it.
Collection Agencies work with freelancers to follow up on unpaid invoices. The services charge a fee or percentage, and while not 100% successful, most derelict clients will end up paying what they owe. A disadvantage with collection services is that there may be a minimum invoice amount the service will accept. In my experience, it is the small-budget clients that are more prone to renege on their obligations, and collection services may not consider amounts less than 4 figures.
Again, do your homework in choosing a collection service. Seek one that fits your business best.
Invoice Discounts. Another means used by freelancers is to offer a discount if the client pays within a specified number of days. The invoice shows the full amount owed, but includes a 5%-10% discount for immediate payment. Discounting is widely used in some industries — effectively. But if a client is not going to pay, discounting has no effect.
Penalty fees. Opposite of discounting, many freelancers (myself included) charge a late fee and interest on past-due balances. This is less enforceable than front end methods, but is effective with some clients.
Front end methods to ensure payment
You can avoid most non-payment issues simply by changing how you do business. I shifted my business practices a number of years ago and have not had any trouble getting paid by clients since. I do certain things with every new project and every new client relationship that virtually guarantee I will be paid in full and on time.
These practices also put me on a peer-to-peer basis with the client rather than the top and bottom relationship that many freelancers experience. The client needs to take you seriously. The key is to enter into the working relationship with the attitude that you’re providing value and the client needs to provide value in return. This creates an even exchange and equal footing. If you come across to a client as unsure or needy, they will more likely take advantage of you. Here is what I do to ensure I will be paid:
Terms. First, and most importantly, I include payment terms in my contracts. I require a written agreement signed by the client that I can refer to if the client reneges or is slow to pay. I can take this written agreement to arbitration or court if necessary.
Deposit payment. Second, I require a deposit before I start working on the project. I do nothing until the deposit money is in my bank account. If the client is unwilling to pay the down payment or delays paying, I don’t start the job. It’s that simple.
With most clients I require a down payment of one-third of the total project fees. With some I require 50%. In a few cases I require the full amount up front.
I am upfront with my clients that I do not start a project on a promise.
A side note on this: When you require the whole amount up front it’s a good idea to have a track record of faithfulness. The client is trusting you by “investing” the money. Remember that some clients have been stiffed by designers and may be skittish. So you need to prove yourself if you’re going to use the pay-in-full-up-front tactic.
Bill in stages. Third, I use progressive billing, submitting invoices at predetermined points during the design process. For example, after the down payment is received, I invoice at first review of concepts, and then again at final review. My final invoice includes any scope changes for which of course I have written change orders, expenses, and any remaining unbilled creative fees. With long-term projects that run for several months, I invoice bi-weekly. Progressive billing ensures a steady stream of income over the life of the project.
The thing to remember with progressive billing is that you are paid up front and then do the work. Receive the deposit, begin the project. Work to the point that you have used the deposit — I work to first review of concepts — and then stop there. Submit your second invoice. When you receive payment, continue working. In this manner, you are never working without having been paid up front.
Provide estimates for expenses. Fourth, I estimate all expenses up front and get approval from the client before committing to the expenses. In some cases I require the client to pay the expenses in advance before committing to the expense, especially when using online suppliers that require credit card payments in order to process an order.
I do certain things with every new project and every new client relationship
that virtually guarantee I will be paid in full and on time.
Don’t begin work without being sure. Fifth, I don’t start work without a contract. Depending upon the client, the contract can be a long document outlining the scope and detailing the production schedule, itemizing deliverables and creative fees. Or it can be a simple work order with terms included. Whatever the form you use, always include payment terms, and require the client to sign it.
If a client has been screwy with me in any way, I will either fire them or require full payment up fronton future projects.
Accept credit cards. Another policy you can consider is credit card payments. Simply charge the client’s card whenever a payment is due. Now don’t do this without a written agreement up front and submitting an invoice each time you are going to charge the card. The client needs to know in advance and agree that you’re going to do charge their card. My practice is to send an invoice to let them know I’m going to charge their credit card within 48 hours. Except for one time when the client’s credit card number was changed, I have not had difficulty being paid. If you have retainer agreements with clients and you bill every month or week, the credit card option might be a good option for you.
Enforce your policies to protect your value.
One mistake freelancers often make — especially early in their careers — is that they accept every project that comes along. When I was doing that I was stiffed more often than not, with clients going silent, changing their phone numbers, shorting payments, bouncing checks, and even post-dating and then bouncing checks! It’s because of how I was treated that I learned to protect my value by creating business policies and enforcing them.
I do not accept jobs from clients who refuse to pay a deposit, sign a contract, or who have reneged on a previous contract. I have fired clients for these reasons. It may sound harsh, but I don’t have to work with everybody, and neither do you. You don’t owe your clients anything but what you have contracted to provide.
Treat it like a business.
You don’t have a business until you treat it like a business. If you don’t treat it like a business your clients may take advantage of you, leaving you on the losing end of your professional relationships. If you don’t yet have business policies, put some in place right away. If you have policies, be sure to enforce them.
Decide on your policies and communicate them clearly to new clients during your initial conversations. Inform your existing clients in writing about your new business policies. Always talk about money, payment terms and billing cycles when first getting to know a client.
In summary, use a written agreement or contract, require deposits upfront, bill progressively, use written change orders, and fire clients when you need to. These practices will reduce and even prevent the likelihood that you will not be paid for the work you perform.
What are your experiences with nonpayments? How did you handle them? What were the results? What policies do you have in place? Share your stories and insights in the comments.