What To Do When A Client Can’t Pay

I wrote this in 2006 to help other freelance writers, and found it while cleaning up some old domains. It struck me that it is just as apropos for any profession, so here it is, unedited, with a gem of a video from Harlan Ellison at the end that I’d shared in a separate post way back when and love:

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Originally written 11/25/2006 by Leslie Poston

Recently, the economic downturn has created some interesting financial situations for my freelance work. I have had a number of clients try to bargain with me (I do not offer writing discounts, a point well covered by a friend of mine and his source this week). I have had several simply stop returning calls and emails. I have had a few outright disappear. None of this has happened to me before in my writing career, at least not all at once, but each one is a risk a freelancer takes.

I’ve been lucky so far. Being a cynic, I set my business terms up to cover myself for deadbeat buyers. I did deplete my reserve funds while recovering from an accident last January through March, but even without the cushion of two months salary in the bank I’ve so far weathered the storm. How do you hedge your bets and make sure the business you have worked so hard on doesn’t tank when someone else’s does in the precarious world of freelancing?

The first line of defense is your contract. Never do work without a contract. Let me repeat that, in case you didn’t hear me: never do work without a contract. I don’t care if it’s free work for your church, a $100 job for a friend or a major project totaling thousands of dollars – sign a contract for each one that clearly outlines the terms. Don’t start work until you have signatures, names, addresses, phone numbers and contact info for yourself and the client on the document. This will be your first line of defense in the case of arbitration, the need for going after funds or any adverse circumstance.

Why sign a contract for pro bono work, or work for friends? Signing a contact with iron clad terms keeps pro bono work from becoming something that takes up too much of your time, eating away at paying client’s time. It also sets boundaries. By having the parameters of the job clearly outlined in writing you avoid getting taken advantage of, which can happen even when a client doesn’t mean for it to. It can save a relationship with a friend or pro bono client not to have to argue about what was included in the offer of work.

The other way to help make sure you aren’t left holding the bag for a client’s inability to pay is how you structure your fees and payments. My payment structure is clearly written out and is absolutely sacred. I will not bend for anyone on this, because I have been left holding the bag the few times I’ve tried to “accommodate” a client. My payment terms are simple: 50% of the project bid to start a project, and the balance on delivery (not on completion, on delivery), with the number of revisions or edits specified in the contract. I never work for an hourly rate or a per word rate – it is too hard to estimate. I always work for a per page rate when writing and I recommend everyone who freelances as a writer do the same, being sure to set a rate commensurate with your experience and include a buffer for any research you may need to do.

If I do a project that incurs expenses such as travel, printing costs or food, I make sure to make those things payable upon receipt, not at the end of the job. If the expense can be determined beforehand, I will get payment up front and provide a receipt once the item is completed. The point is that incidentals can sink your ship if you don’t take them into account and be firm with your clients about your terms.

Never change your terms midstream. Whatever you determine is your rate, put it on paper as a rate sheet, and make it available to potential clients. Detail each service offered for each rate clearly. Don’t change your rates more than once a year, if that. I tend to keep my rates for years at a time, only changing them to accommodate changes in costs of running my business. This makes your clients comfortable in knowing exactly what they can expect from you, and it is just good business.

If you have a client disappear or become unable to pay, you have several means of recourse. First, turn to your contract. Use the contact information in it to try and track down the client first. You always want to try the amicable solution first. If you can’t reach them by normal means to achieve a solution, you may have to take your contract to a mediator, a court or a lawyer. If you were smart and got 50% of your bid up front, you shouldn’t be in too much hot water financially, yet. If you were even smarter and banked your profits from your first few clients to create a cushion, you have more time to resolve the payment issues you are facing now.

Once you have determined a need for further action, first check out the laws in the country or state your client resides in. Often the simplest and cheapest solution to your problem is to file a free small claims court petition against the client in their own location. Most small claims court petitions are free to file, though you should check the laws in each state before assuming that is the case. some states also require you to present your small claims petition in person, so be sure to find out if you can file in absentia as well. once you know the proper procedure for the state in question, simply provide copies of your contract, completed work and invoices as back up to the file and let the system work for you.

If small claims court isn’t the solution for you, you can check with the courts in the client’s state to find out if they have filed a petition for bankruptcy. All bankruptcy filings are public record. It costs you nothing to find out if someone has filed. If your client has filed for bankruptcy, you want to contact their lawyer and the court and be added to their bankruptcy petition as a creditor. Again, you will provide documentation of the work provided to the client, including a contract copy. Often bankruptcy court cases settle for pennies on the dollar after dragging on for a few months, so this is definitely not the fastest way to get paid, nor will it get you the full amount you are owed, but something is better than nothing, right?

If none of these solutions work, you can try using a collections service. The collection services work by purchasing the debt from you, again for pennies on the dollar, and then pursuing it on their own behalf, using their own resources. Once you sell the debt to the collection agent, you are no longer allowed to continue to try to collect it yourself – it is considered paid as far as you are concerned. This is probably the least favorable option to pursue, as collection agents are not pleasant to deal with on either end of the equation.

Currently I am listed as a creditor on three bankruptcy filings. That is certainly something I never thought would happen, and a sure sign the economy is struggling this holiday season. At least I will get paid, and I made sure to get the deposit before starting the jobs, so I am not completely losing my shirt in the meantime, but if I didn’t follow my own advice to stick to my guns and get everything in writing I would be up the creek.

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And from a post on the same blog a few weeks later, this video I thought fit the theme quite well:

URL for video: http://www.youtube.com/watch?v=mj5IV23g-fE&feature=player_embedded

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