What do you do when … your clients won't pay your invoices?

Sticky situationsHaving a client stiff you is one of the most difficult situations for a business owner. You have invested in salaries and expenses to do the work and now you aren’t getting paid. If there is some kind of problem with the work, that’s one thing. But if you delivered great work and you’re still not getting paid, that’s another thing.

Just as the best offense is a good defense, the best way to avoid getting stiffed is to avoid the situation altogether. Don’t offer credit; charge in advance.

pastdueclientsI get a lot of pushback from this suggestion. People tell me, “My clients will never pay in advance.” I’m telling you that they will — and do! You just have to ask. Often the people pushing back on me have payment terms like 20% of the project fee paid at contract, 30% after we deliver the first draft and 50% upon completion. That’s flat out crazy! If you just turned that around and offer 50% down, 30% after 30 days and 20% after 60 days you’d have 100% of the money before the project is even completed.

Don’t believe me? Ask — you’ll be shocked how few people even question it. Also, don’t make payment contingent on project progress, just make it based on time. If the client is delaying the progress (which they usually are) the impending payment can get them moving again.

To make this work though, you have to stop working if the payment doesn’t arrive. I understand, this is hard. Your clients sometimes tell you stories about how broke they are, and how the money will be coming in next week… They are paying someone. Their phones still work, their lights are on, someone’s getting paid — it’s just not you.

There is also the legal remedies, and by that I mean you need a contract and a lawyer. Mike Monteiro gave the definitive talk on this at Creative Mornings San Francisco (which was thankfully videotaped! Watch it here: F*ck you, Pay me. ). The key takeaway here is that you should never transfer ownership of your intellectual property until the final payment is received.

But let’s say you didn’t do all of that and now you have a client to whom you’ve delivered work, good work, that both sides agree is good work, and you aren’t getting paid. What now?

First, when you realize that you are in a hole, stop digging. Some clients will tell you that if you only do a little more work for them that then they will have the money to pay you. That’s the definition of throwing good money after bad. The answer must be no. I’ll admit, it makes my ego feel great to hear a client say, “You are the secret to improving my business.” It makes me feel like such a hero! But it’s a lie — they just want to string you along, play up your ego and steal more of your money.

“But if I stop working for them, they’ll never pay me.” Maybe not, but you can put that time and energy into a client who will pay you.

Once you’ve stopped working for free, you have to get paid some of the back debt before you can do more work. I would say, “If you want $1000 of new work out of me, you pay me $1000 off the debt, and $1000 in advance for any new work.”

While I don’t recommend it, I do know people who have gone to drastic measures to try to get paid. Frank Jonen hijacked his clients’ website to post a collection notice. I’ve seen a client park their car in front of a deadbeat’s driveway so that his trucks can’t get out to service clients. Another business owner registers domains like karlastevenswontpay.com — just in case…

What do you do to get paid?

Comments

  1. OR another option is Trade Credit Insurance which protects the customer from bankruptcies and slow payment losses. You can, at times, lose your competitive advantage if your competition is still offering terms. This might work for smaller business, but isn’t practical for larger businesses.

  2. Thanks Todd, that’s helpful information!

  3. Jon Schickedanz says:

    Brad,
    Great post. Invoicing via the calendar and not the progress of the project is the only way I work. One added advantage, if you’re in a business that requires a lot of client feedback or content (web developers, anyone?), knowing that they have a payment due at 30-60 days will keep them focused on getting the project off he table and on the street as quickly as possible. The best part is, if you explain it that way to the client, they typically see it in their best interests and offer no objections…most of the time.

    • Jon;

      Great tip about invoicing based on time and not progress. That’s critical for creative projects that need the client’s input! Just because they are too busy to get you content, or give you feedback, you still need to get paid. I have rarely seen push back with this system either.

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