FocusMinded.com a blog about faith, politics, web, magic and more

1Aug/0710

What Happens if Your Clients Don’t Pay?

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Today's article is in response to a user request from my article on web design contracts.

Great! Really good article. I think it might be quite useful to outline what happens if money is not paid within the time specified - like a late fee or removal of site until payment etc.

Excellent question. So what do you do when a client doesn't pay on time or at all? Inevitably it'll happen to you too. No matter how much you guard against it, no matter how much you attempt to prevent it, you'll end up with this question. Face it, sometimes clients won't pay. It isn't because the website isn't what they wanted or asked for, it isn't because you've done something wrong, it just happens. When a client doesn't pay by the date you've agreed upon there really are only two thing you can do at that point and you've mentioned them both. However, I am going to take your question a step further and include not paying at all. What may start out as a late payment, might turn into no payment.

How does it happen?

When kick starting your web design business or writing web design contracts you likely don't think of people not paying you. I mean you wouldn't stiff someone else with a bill that you owe. So we tend to not think about the potential bad that can happen to us.

Depending on the type of client the reasons will vary. They might be subcontracting the job to you and have not gotten paid yet. Your client was premature in hiring you and giving you the go ahead to start the work. You see any number of reasons can lead to an eventual bad debt write off. The most common reason this happens is that when starting out many of us will take nearly every job that comes our way. Sometimes at the risk of not being paid. This is the case because we likely change our normal procedure (requiring the down payment or deposit).

Thankfully, I have only had two clients not pay me. The first instance I was not paid was after services were rendered for a small job, my client disappeared. I couldn't collect because I couldn't reach this person (it turns out they moved from Hawaii to Florida). The second time this happened, my company was asked to do a very quick turnaround on some 'grunt' work. When we asked for the down payment (50%) on a rather small job, they refused because they weren't getting paid until the job was done either. Instead of accepting this and turning down the job, we said okay we understand. Bad choice. Lesson learned. So what can you do about it once it happens?

What can you do about it?

Since it is going to happen, it is important to know what you can do about it. Which of the following options is right will depend largely on the amount owed. So instead of detailing all of these, I am just going to list all of the options available with some brief comments.

  1. Do nothing. (Not what you wanted to hear, but it is an option.)
  2. Charge a late fee.
  3. Refuse to deliver the site. (Assuming it isn't live already.)
  4. Take down the website. (If you still have the credentials.)
  5. Work out a payment plan. (Sometimes it isn't a matter of not paying on time or at all, but not paying the full amount for whatever reason.)
  6. Turn them over to a collection agency. (Keep in mind you'll pay for the service, but it is better than zero return.)
  7. Take them to court. (This is very hard to do while keeping it worthwhile, but it is an option.)

How to prevent it from happening again.

The most important thing you can do is learn from your mistakes or mine. Stick to your policy or standard operating procedure at all times, no exceptions (not even for your friends). Realize it is better to be safe by losing the job or turning one down, then to be dealing with collecting money. So here are my tips to prevent it from happening again.

  1. Always require a deposit or down payment. (I recommend 50% or 1/3 on larger jobs.)
  2. Host the development sites yourself. This way you maintain control of the site. Which means once payment is received, the site can be 'delivered' to them.
  3. In your contract include details on the penalties for not paying. (late fee, site removal, etc..)
  4. Realize as mentioned above, that it is okay to not take some jobs. After all potential money isn't as good as actual money.
  5. Make sure the lines of communication are always open. Speaking with a client on a regular basis will help determine their reachability.
  6. Play it smart. The most general prevention tip, yet the most effective. If your gut tells you something isn't right, it just might be. Cross your t's and dot your i's.

Do you have a horror story and lesson learned that you'd like to share with us?

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Comments (10) Trackbacks (7)
  1. Thanks! Another great article.

    One of the things I really dislike (in general) is being in debt to someone. This means that I’m always really keen to pay bills or money owed and I often forget that other people aren’t always like this! So I think sometimes it’s just a case of reminding them gently, maybe sending another invoice with the amount in red or giving them a quick (and polite) call.

    Once you start talking about further action the relationship with your client can become a bit hostile. Luckily I’ve only really had this problem once, and it was actually working for a charity! They had been given a grant to set up a website but the grant had been given to someone who had then moved away. I ended up taking the ‘do nothing’ approach (after all it was a charity!) and I eventually got given the money 18 months later!

  2. Great Article. For some reason I never thought about the idea of requiring 50% up front. I like it. Thanks!

  3. There are effective solutions that are very reasonably priced! We collected $700,000,000+
    for 60,000 clients for an average cost of $10 per debtor last year!
    All the Best!
    Vito

  4. Great article. My feeling is the best way to get paid on a project is to thoroughly screen and weed through your clients beforehand. Shifty business models, people with inexperience dealing with the web, large barriers between you and the client’s client’s client, a history of delayed payments, offshore, poor project management skills etc etc are all good things to watch out for.

    If a client pays late more than twice – drop them immediately, they will only get worse. No project is worth sitting for months going hungry while you wait for them to pay. That time can be spent working for better clients!

  5. This is my favourite method of helping companies remember how hong to wait for the pleasure of my company at the creditors’ meeting.

    RB

  6. Never allow the client to owe you. Make them put a deposit down and make them pay before moving forward.

  7. “”"I suggested he publish their name on his blog, if they didn’t make any effort to pay within 30 days.”"”
    I am not an attorney, but if this could be considered “Black-listing” a debtor, you could possibly be considered in violation of THE FAIR DEBT COLLECTION PRACTICES ACT.
    Here is the quote:
    § 806. Harassment or abuse [15 USC 1692d]
    (3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 603(f) or 604(3)1 of this Act.
    As I tried to state in my original comment,”Early, Diplomatic, 3rd Party Intervention at a fixed cost” is VERY EFFECTIVE!

  8. @Vito – you are correct, thanks for making that clear to those who do not know. The legalities of things can sometimes be a fine line to walk on, so it is best to error on the side of caution always.

  9. I have come upon a difficult situation, where a client has received goods and services and has not paid for 5 months now. Now, this client has asked me to do more work, register domains, and setup hosting for other websites. She explained she was in a financial bind and would be able to pay later in Feb. However, being that a bill is 5 months currently due, I feel as though I should not do any more work.

    Now, she is upset with me, wants to get someone else to do the websites, and complained as though she is a paying customer. Even went to the point to mention that I have two incomes, and I am not going through a hardship. OMG.

    I told her I run a business, my job or my spouses income has nothing to do with the situation. This is a long time customer, but I think I will turn this loose. Late payments have happened many times in the past as well.

  10. We had a client from the company I work for who requested at least four reviews before we put up the site for them, according to what they wanted from their final decision. Now, after we’ve advised that it’s time to pay the fee, he seemed unwilling, not just unwilling but VERY and STRANGELY Unwilling. While making up all the weird/odd requests, more changes, more new design, etc. To drag the paying time so to speak. This however, has been on and off for more than 8 months AFTER we’ve notified him it’s time to pay. I’m simply an employee as a proper qualified designer, so I don’t have much stand in regard to this. While my boss don’t seem care at all.

    All in all, we kind of “fired” this client around last December, here’s the funny part, he came back just before we fired him (this client,) and saying he’s got more sites in other country and he wants us to reconsider, in term of keeping him under our wing of service. I believed we’ve disagreed.

    Anyway, this is just a tip of an iceberg which I’ve experienced lately. Be really careful and thoughtful in which company you’re working for/with, if they don’t have a good and firm structures when comes to this professional business level, try and find a better one. Seriously.


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