I design electronics for the money. Yes, I love the work, have gotten quite good at it, and believe it is my God-given purpose on this Earth. But I don't kid myself; if cash from electronics stops flowing I'm going to find another job. Businesses that can't recognize their primary motivator are destined to be a failure (note that it is possible to run a failure of a business for a long, long time). Making sure I get paid is arguably the single most important aspect of the business.
What, then, does a good consultant do when a client doesn't pay an invoice? My past 10 articles are all about making absolutely certain that clients are happy, even if I have to take a loss on a job. Is it ok for a client to not pay an invoice if it will make them happy? No. There is a difference between not making money because of a mistake I made and not making money despite doing a great job.
Which leads me to my first point: Getting paid starts with the contract. Agreeing to what constitutes a 'great job' and what it is worth is much less contentious at the start of the project. At the end of the project 'value' is more a function of who needs what from whom.
Let's assume that I have a great contract and the client isn't paying. I know of three possible settings for this scenario to play out:
- The client can't pay.
- The client doesn't want to pay.
- The client draws it out.
- The client goes radio silent.
The Client Can't Pay
Stuff happens. Companies run out of money, or don't get the income they expect. While frustrating, it is at least understandable. I recently took a client that was going to run a Kickstarter campaign for some drone technology where I was to design a unique power system. Being a personal interest of mine I jumped on the opportunity, gave them a very generous 'hobby' discount, and agreed to payment terms of 50% up front and 50% on completion. My mistake here was not finding out from where they were getting my money. I got the 50% up front, designed and delivered the system, and upon invoicing they told me that their Kickstarter funding failed so they couldn't pay me. Uh oh.
My approach here was to first ask what they could pay right away. They understood my position and reimbursed me fully for the parts I bought and paid about 20% of the balance in good will. This was encouraging, giving me hope that they would continue to be the reasonable people I knew while developing the design. At the same time, we set a meeting for a month in the future to discuss progress.
When the second meeting came around, I listened to their plan on how they were going to move forward and offered a few suggestions. I also asked them if they could make another installment on the debt, explaining that payments show good intention and make it much easier to work through things. They paid another 20% of the balance, and we set another meeting.
A month later we had a similar meeting, but they were totally tapped out of cash and couldn't make another payment. What's worse was that they needed some additional design documentation from me to continue with their plan. This was a tough decision; normally I don't do any work and I never give documentation until accounts are brought current. I made the call to give them to documentation they needed on their word that it would be paid, even if the CEO had to write me a personal check. We had worked together for about a year, and I trusted him. Plus, I had already done the work and I had a vested interest in their success.
The next meeting we had was at a turning point for the company. They were going to re-launch their Kickstarter campaign and needed a bit more work from me to make that happen. This pushed my trust to the limit, so I asked the CEO to personally guarantee the contract in full. If the company didn't get Kickstarter funding, I could take the CEO to court personally and recoup the full amount. He agreed, and I respected him for standing behind his word. I did the work and delivered fully.
Thankfully, the project was funded on the second try and they paid my invoice in full including the late fees that were stipulated in the original contract. Everything turned out great, and I'd be happy to work with them again (although with work done on a retainer to be sure I get paid). Being understanding, level headed, pleasant, but still insistent played out well for me here.
The Client Doesn't Want To Pay
My experience here has thankfully just been related to miscommunications. The main reason a client didn't want to pay me is because they thought they got something different than the contract outlined, as I've described before when explaining acceptance clauses.
It is also possible that the client understands they got what the contract outlined, but they have buyer's remorse and don't want to pay. I've linked an awesome video below that talks about this exact situation. I've never delivered something for approval and then been canceled, but that is exactly what they might go for. The contract is my favorite tool here, as it should outline what will be delivered and any cancellation scenarios that might exist. It comes down to a negotiation at this point, and taking a haircut of fees might happen in order to prevent litigation. Failing a good negotiation outcome, I'm afraid it's lawyer/court time.
The Client Draws it Out
'The check is in the mail.' The bittersweet promise that they have completed payment on their end, and it will arrive any day. Hearing this still causes me to revert to excited 8 year old Calvin as he waits for his beanie with Hobbes. On the other hand, if the check doesn't arrive trust begins to erode since they may just be forcing a payment extension without asking. I've had the USPS deliver an envelope from California to Ohio in a day or two, but one time it took 7 days (as confirmed by the postmark).
My favorite method to deal with this is to ask what day the letter will be postmarked so I'll know when to accept it. This politely informs the client that while the trust is there, I'm going to check when it arrives. It also allows them to jam the payment in the mail that day and say 'I mailed it yesterday, but the postman may not get it until today' in the event that they going for an extension.
Unless the trust has been broken before, I'll give the client the benefit of the doubt. Upon hearing that the check is in the mail, I'll thank them and say that I'll give them a call in a week if it hasn't been received. If it hasn't arrived it in a week, I'll call again and ask about it. Depending on the client, I may wait another week, or I may ask that they issue another check. One way or the other, I call every week until the invoice is paid.
The Client Goes Radio Silent
This is basically their nuclear option when it comes to not paying bills. They aren't being reasonable, or even conversational. I've never been in this scenario, but the first step I'd take would be to send a certified letter with my invoice to their address, especially if I gave them payment terms like net-15 to get that clock started. Once the payment is past-due, I'd try to contact them again by phone and email, and then get together with a lawyer. Some more aggressive colleagues of mine would jump straight to the lawyer, which isn't a bad idea either.
I'm sure there are other situations that result in clients trying to not pay their bills. Forcing people to pay up is a practice relegated to the mob, so dealing with deadbeats is always challenging and slow. I always do everything I can to settle things like grown-ups, but lawyers exist for a reason and I'm sure they would be quite helpful if the situation goes pear-shaped. In the end, doing excellent work is the best and easiest way to get paid on time.
Hear what an expert with his lawyer has to say about getting paid (NSFW warning: includes lots of profanity).
Pelican photo thanks to wsssst.
James Benson is writing a series on 'Engineers As Consultants' to educate and encourage salaried engineers to consider if hanging a shingle is right for them. New posts on the first Monday of every month.
Pt. 1: So You Want To Be A Consultant
Pt. 2: How Do Engineers Find Consulting Gigs?
Pt. 3: How To Price Consulting Services?
Pt. 5: Finding The Best Client Mix
Pt. 6: How To Turn Down A Client
Pt. 7: How to Write a Client Acceptance Clause
Pt. 9: Taxes, Writeoffs, and Accounting
Pt. 10: When Subcontractors Quit
Pt. 11: When a Client Turns into a Deadbeat
Pt. 12: Getting Paid with Company Stock
