Finance

How do you deal with a client that doesn't make paying you a priority?

Jens Zalzala Founder, Head of Mobile Apps Development at Shaking Earth Digital

October 1st, 2015

I run a software development service company and have a client who every now and then decides to stop paying me for months at a time. We bill them hourly for work performed and invoice about every 3 weeks. 

The client is a startup we've been working with for over 2.5 years now. I mainly deal with the CTO, who keeps assuring me that they are on it, but ultimately he's powerless on that front. They don't seem to have a CFO, or accounting of any kind, so their CEO handles payments.  

I *think* what happens is that the CEO is too busy to deal with it, will let things slip, will then try to do everything at once and will freak out about seeing months of bills stacked up and in turn complains to the CTO about how much everything is costing, which then trickles down to me. 

The thing is, I do believe they'll pay eventually (they have in the past), but they're seriously screwing up our cash flow, and the added stress is just not something I need. 

So how do you deal with clients that just aren't organized on the payment front? Do you add penalties? Do you add incentives for paying on time? Do you just move on and find another client? 

Peter Weiss President at American Outlook, Inc.

October 1st, 2015

The Russians used to say "they pretend to pay me so I pretend to work".

Funny thing how some start-up managers think everyone should underwrite their dream, most especially their service providers.  The phone company will cut them off after a couple of month and is righteous about imposing and collecting late payment penalties; so is the credit card company.  Landlords will toss them out of their space.  If you don't pay your hosting service things get sticky after a while.  See what happens when you try not pay the guy at the food truck or the pizza place.

When one of my clients is tight on cash we talk to our vendors, make partial payments and always return their phone calls.  If we've committed to paying on a certain schedule and realize we're going to be behind by more than a few days we let them know and ask for their cooperation.  It's amazing how much help and consideration you can get if you demonstrate good intention.  

The flipside is that if someone goes dark, we reach out to find out what's going on.  If we don't hear back we slow down and eventually stop delivering.  As long as they're behind they are a low priority client.  I will be polite (until they've made it clear they don't care about paying) but we can always decide whose call gets answered first and how long we talk to them.  

A friend of mine told me years ago "I don't take risk to break even.  If I take risk I expect to be paid well for it."  A client who pays slow or sporadically should not only be paying penalties for not keeping their word but should be charged a higher base for the annoyance, distraction and disruption they will cause to your business.

Put bluntly, your client hopes the work you are doing is going to make them very rich.  If they don't keep their promises to you and can't find the time or energy to at least keep in touch, you have no obligation to help make them rich.  Your first obligation is take care of your family, your team and yourself.

Michael Barnathan

October 1st, 2015

If it's that critical to them, they can afford to pay the people who are making it happen in a timely fashion. If you're uncomfortable stopping work immediately, give them an ultimatum.

Also keep the code in a private repository and don't release it to them until payment is granted. I do this on every development project, and it's written into my contracts. They get to see the shiny thing, but they don't get to adopt it as their own until they pay for it.

Michael Barnathan

October 1st, 2015

Stop work until they pay you, obviously, and make sure you set frequent milestones so your loss is limited. If they do this often, you may want to consider whether keeping the client is worth it.

Brent Laminack Principal at OpenFace Systems, Inc.

October 1st, 2015

Jens, you need to add the percentage. Here's why. If you demonstrate to them that you don't take your contract seriously, then they have no reason to take it seriously either.

Michael Barnathan

October 1st, 2015

If they don't plan to pay you anyway, tacking on a penalty won't work.

Sure they're not taking you for a ride? I try to assume the best of my clients and give them the benefit of the doubt, but sometimes there are signals they're not acting in good faith...

Tim Scott

October 1st, 2015

I do believe they'll pay eventually

Until one day they won't. Operating this way not only takes an emotional toll, it poses a real financial risk, especially when it's a startup.

Unless they otherwise suck as a client, don't quit them. Implement some kind of work stoppage or financial carrot/stick policy. Make it a policy and tell them. Ad hoc will needlessly raise everyone's emotions. If this policy causes them to quit you, wish them luck.

Michael Barnathan

October 1st, 2015

It's a developer's market. If they're inconsistent about paying, it's easy to find another client who isn't.

There was a website where you could report non-paying clients as well, as a warning to others. I forget where (I've been out of freelancing for some years), but it may have been Freelancer's Union.

Steven Schkolne Computer Scientist on a Mission

October 2nd, 2015

Hi there - having run a dev shop for 5 years, I learned a lot about getting paid. Everything that Michael Barnathan says is exactly the correct attitude.

Jens when you say "They're kind of at a critical time in their project, so when I suggested I stop work they kind of flipped out on me. I don't really want the project to fail, either." -- this shows me you have exactly the *wrong* attitude (if you want to get paid). The fact they're at a critical time is *exactly* the leverage you need to get paid. You're a service provider. Your not getting paid is *way*, *way*, *way* more critical for your interests than their project failing. Anything less than that is selling yourself short. It's OK to add some slack, but you must draw a hard line in the sand.

This is how it works:
  • when their bill is not paid on the due date, you send them a notice, that in (say) 2 weeks you will stop work
  • you continue to notify them, but do not move that date
  • when the date comes, you stop work -- and suddenly the relationship flips from being about getting the work done, to everything every conversation about getting you paid. At some point, this gets legal but -- well I wouldn't recommend getting lawyered up, especially with as much history you have with this client, and the tremendous amount of leverage you seem to have in this particular situation. Do not start again until fully, fully paid up.
  • As noted above, hold onto code until paid in full. (a little difficult when working on a shared repo - and sometimes a reason to avoid that).
Basically, set a line, have a clear process of exactly how much slack you will give, accept no excuses and do not add additional slack. Utilize your leverage and -- ultimately if needed the law -- but try to avoid that as long as possible.

Realize that you are going out of your way to do all this shit to make sure their project is delivered on time. Their paying you should be as easy as going and fiddling with a couple bank accounts (or if not - there is a bigger problem). It is not weird, imho, to get indignant about someone not willing to go and fiddle with their bank account, when you're putting all this work in day-in, day-out. You have an agreement. You are doing all this to honor your side of it. They have one simple thing to do, and that is pay you. It is OK to be outraged when they don't hold onto their half of the agreement, and treat their responsibilities/commitments as less pressing than yours.


Brent Laminack Principal at OpenFace Systems, Inc.

October 1st, 2015

What does your contract with them say? Mine says if they don't pay in 30 days they get sent to collections. If they don't want to pay, they get a letter from my lawyer. My contract says that all billing disputes will be settled by mediation. My lawyer's letter says he'll be setting up mediation (in MY county) within 10 days and asking the mediator to grant us all legal fees on top of what they already owe us. Amazing how fast we get paid in most cases after the letter goes out.

Scott Laughlin SEO Manager at Walmart.com

October 1st, 2015

Simple solution -- bill them a retainer in advance and bill against the retainer. Good luck! 

I've got an SEO client I might do that with -- he pays but I have to keep reminding him (gets old fast...). 

Rather than billing hourly, I currently charge a weekly rate for an average allotment of hours/wk.