At some point you will come face to face with the worst type of client. The client who despite numerous attempts on your behalf, is refusing to pay outstanding fees on a project.
As a business you will at some point have to go after a non-paying client, and as such should be prepared for the fight; or at least be prepared to issue the threat of a fight. Personal / Business time lengths are differential between entities but as a general rule you will know when this time sets upon you or is vast approaching when:
As an efficient and well prepared business you should have a method / set of rules in place for this very eventuality. You cannot expect a client to be prompt and timely with their end, if you are not the same with yours! The best way to address this hyperthetical situation is from the beginning…
1) First invoice not paid
I am not going to go into why you should have contracts, but simply this event is one of many in favour of working with contracts. One key point is having contracts in place that stipulate to the client how quickly they are expected to pay invoices once they have been issued. This immediately gives you a date to send your first reminder. Typically for us this may be between one and two working weeks. At this stage, our eyebrows are far from raised; there is a multitude of reasons why payment may not have been received. (Benefit of the doubt is given) For us, this is simply a follow-up email with the invoice attached as a PDF.
Example:
Dear ************,
Hope you are well. We are e-mailing in regard to ( project / reference number ) and its respective invoice sent on (date). As discussed, the project has now been completed and the invoice to the amount of (£ FEE ) is now overdue as per the agreed schedule of payment. There are a number of payments methods available as detailed in the attachment.
We look forward to hearing from you and receiving payment promptly,
Kind Regards,
(SIGNATURE)
2) E-mail not answered / Payment not received
At this point for us, payment is roughly 3 working weeks late and the client has been out of contact for approximately a fortnight. At this point eyebrows are raised. Lack of contact is an alarm bell in itself. This is where our tone in following contact needs to take on a certain level of seriousness. The first invoice at this point is followed by a phone call to enquire as per the status of payment and when it can be expected to be received. After this phone call, it is good practice to shoot the client an e-mail summarising your phone call and any agreements you may have come to, as well as re-issuing any amended invoice timescales etc. If unable to reach the client via telephone or they are uncooperative then an e-mail to the following extent is sent; as well as a letter to the same effect. Remember, your a business and as such you need to conduct yourself as one, being ‘nice’ at this point isn’t a requirement; being professional is:
Example:
Dear ************,
We are e-mailing in regard to ( project / reference number ) and its respective invoice sent on (date). As discussed, the project has now been completed and the invoice to the amount of (£ FEE ) is now considerably overdue as per the agreed schedule of payment within contract (ref number). The commissioned works were completed and delivered in full on the (DATE, 2009), and its payment has now been overdue by (TIME) days at the time of this emails composure. The bill of (£ FEE) was neither settled within ( TIMESCALE) as contracted and numerous attempts to contact you have been unsuccessful.
As per our normal practices, we must at this point (in accordance with our terms and conditions) request payment within (TIME SCALE) ( 7 days) of this contact. If payment is not received by (TIME, DATE) we will deem you in breach of contract and will take appropriate action. Detailed within our contract, we also feel it important to remind you that until payment is settled in full, all works are the full legal intellectual property of (COMPANY).
There are a number of payments methods available as detailed in the attachment. Please do not hesitate to get in touch via (CONTACT DETAILS).
We look forward to hearing from you and receiving payment promptly,
Kind Regards,
(SIGNATURE)
3) E-mail / Letter not answered / Payment not received
At this point you should revoke the use of any systems you have made available to the client if possible. (e.g a website). At this point you have several options. Our personal normal action after this is to simply to refer the matter to our solicitor. Solicitors will issue the following contact at a fee ( around £30.00 GBP ) per correspondence and keep us informed accordingly. Why get the law involved? Psychological warfare! Many people / small businesses will magically arise from the shadows and a ‘troublesome email server’ or an ‘office move’ when they receive a headed; formal; debt notification letter from a solicitor. One of these wonderful gems, contains diplomatically worded threat as to the consequences of further non-payment and absence of contact; it also establishes a deadline beyond which this threat will be acted upon. it is also advisable to discuss the matter in full with your solicitor, as in reality you do not want to word your letter threatening full civil action in regard to a bill of £1.00 GBP. Extreme example but you get the point. It often also states how the fee is likely to increase with interest / debt recovery fees should time pass by a further set time limit. You can also, simply send a similar letter yourself but we feel the fee is worthit. We also copy and type the letter as an e-mail to the same effect to the client.
4) Contact and Resolution / ‘Walking the walk’
At this point, fortunately for us in the two honest occasions this has happened, the client has paid in full with an e-mail summarising their ‘circumstances’ within days of receiving the solicitors lawyer. The key for us, was simply responding in a professional manner:
Example:
Dear ************,
Hope you are well. We are happy to confirm receipt of payment for (project / ref number) and its invoice (number / reference). Please find attached the statement of accounts and receipt of payment. (Relevant files / services will be re-instated/sent) to you within 24 hours. We wish you the best in your further endeavors and would hope you would not hesitate to contact us in the future for your design projects.
Kind Regards,
(SIGNATURE)
However, not everyone’s tale ends in a fairytale happily ever after. The client may offer to compromise, in which case you will have to decide, in consultation with your solicitor upon the terms of that compromise. Sometimes, settlement for an agreed fee is the most economical and beneficial resolution to the matter.
If after setting upon the following process, and going out of your way to accommodate your client, then you have to decide if you wish to pursue the matter and carry out your diplomatically worded threats….
How do you deal with non-paying clients?
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[...] How To Deal with Non-Paying Clients [...]
[...] How to deal with non-paying clients [...]
[...] How to deal with non-paying clients [...]
Great post! I appreciate you writing about a sometimes touchy subject.
Wish this was around a year ago when I began my business. I have had a couple run-ins with late-payers and non-payers. Usually, the late-payers just forgot and once I notified them they sent the check in right away. I have, however, had a couple non-payers. I have one invoice over 120 days old and will probably never see any of it. In both of my cases, both clients have paid me in the past, so I saw any reason for them not to pay me on these jobs. It turns out that both clients’ businesses folded and therefore they didn’t pay me. I feel that they should still pay me for design services rendered, however, they feel otherwise. I am currently trying to find a better system, and have thought about having clients pay in full before work is done. I don’t want to punish my regular paying clients though with this new policy. I would be curious to know how other designers deal with this and how you differentiate between your wonderful clients and the not-so-wonderful clients who owe you money.
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Acuity DesignsReply:
Hi Kim, argh.. what luck! but in the times were in, many businesses are folding. In terms of other pricing strategies… I would say asking for full 100% payment upfront, whilst it will almost certainly weed those who are committed to their project from those who are not. It may also scare off a lot of potential clients! A few designers I know take a larger desit of say 50% whereas some are comfortable with 25%. As for differentiating good clients from bad clients… thats an art I haven’t mastered yet – but you can evaluate clients or try and work out what type of client they are!
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hmm – Have been down this road far to many times for my liking. Have also taken a few down the legal route – but beware – I have been told on so many occasions that it’s ‘an open and shut case’ by the legal team – only to find out that the offending company closes down, and restarts the following day under a new name – int he UK there’s hardly anything you can do about this.
Surely the law should be there to protect US, not the people who have no intention of paying?
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Acuity DesignsReply:
Hi Andy, thats a worrying thought.. So if a company goes ‘bust’ by law they are not obligated to cough up? even with contracts etc?
.-= Acuity Designs´s last blog ..Links for 2009-11-12 [del.icio.us] =-.
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[...] How To Deal with Non-Paying Clients | Acuity Designs. [...]
Great article. Something new for me
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Acuity DesignsReply:
Happy it was of use!
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Easy for webdesigners: Host all css/js etc files on your own server until payment is received. When payment is not received on time, rename the directory and kill their site.
Little bit harder for Graphic Artists: Only release .jpg versions until you are paid.
Obviously this wont work 100% of the time but it should help curb some non-payment issues.
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Acuity DesignsReply:
Hey 39CentStamp, that’s a good recommendation. For web projects the measures one can take are somewhat easier.. But even hosting css files etc on your own server doesn’t protect you from the determined client who might literally want to steal your work±
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Here in the UK Active Webdezign uses a company called Thomas Higgins who send out a warning letter or LBA (letter before action) this only costs us a minimal amount of £2 per letter. The effect is instant since the person owing the money believes that the next step would be a county court judgement or CCJ which everyone tries to avoid. We found that 9 times out of ten this letter is enough to get the money owed. See http://www.thomashiggins.com/index.html
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Acuity DesignsReply:
Hi Mike, thanks for commenting and dropping off that GREAT link.. Cheaper than the method were using at the moment. Seems on the face of it, a great service. You recommend it?
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[...] How To Deal with Non-Paying Clients | Acuity Designs [...]
This post interests me a great deal as I’ve had a lot of experience with late payers and non-payers. In the UK you can charge interest at 5% over the Bank of England interest rate (which at the moment isn’t much but may be one to remember about later). I wrote about it here: http://robcubbon.com/charging-interest-on-late-payments
Enter the amounts and dates here to calculate the interest: http://www.payontime.co.uk/calculator/statutory.html
But this doesn’t help if your debtor lives in US as a couple of mine do.
One drastic course of action is to write a page on a good website you own with their name or company’s name in the page’s title and say what’s happened. That way anyone Googling your late-payer’s name might see their bad reputation. A sort of naming and shaming!
.-= Rob Cubbon´s last blog ..First thoughts on the 4 Hour Workweek =-.
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Acuity DesignsReply:
Hi Rob.. thats a great link you have there for UK based clients.. bookmarked!! The name and shame route seems to be a popular action; it just feels a little messy for me!
.-= Acuity Designs´s last blog ..Should You Find a Niche To Stand Out From The Pack? =-.
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While I am not a designer but rather a Virtual Assistant an client who doesn’t pay is universal!
It happened to me very early in business (when I was a tad too trusting and didn’t have contracts). I got the good ‘ole “check is in the mail” story and trusted that was so. Nearly $800 later…I stopped doing work for that person.
Now I use contracts and do try to require a retainer payment upfront but like Kim Smith mentioned above I haven’t figured out how to address it with my currently good clients.
If only I did webhosting or something like that…those are so easy…turning off someone’s website for failure to pay typically gets a quick response!
Michelle @mmangen
.-= Michelle@Your Virtual Assistant´s last blog ..Alex Mandossian’s business card suggestion results in Social Media encounter =-.
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[...] How To Deal with Non-Paying Clients – Luckily I haven’t had to deal with too many of these. Though I question #4. After all this nonsense you’re going to include “…would hope you would not hesitate to contact us in the future…”. Gluttons for punishment? [...]
I’ve found that best way to deal with this situation is not to get in it in the first place. Contracts are a good start, but the best protection is – don’t let clients write you checks in the first place. Use credit cards only – writing you a check should be a special privilege reserved for your very best clients, and why would they want to be bothered, anyway? PayPal will let you take a credit-card number over the phone or in person with its Virtual Terminal service for $30/month, and that’s already included if you use its Website Payments Pro product now. Or, if you already have a merchant account because you run an ecommerce site of your own for something else, you’re already set here. The fee is 3%.
With credit cards, we tell them when we’re going to run the card. With checks, they tell us when they’re going to send them.
Now, before you say that’s too expensive, think how much you’ve already lost in invoices you’re never going to see again. Chances are, each of you has already paid for several years of the service already.
Next step: Down payments and partial billings. Specify that you’re going to get 50% upfront – before you start anything. Or a third. If you work with video studios, you know they get 50% on booking the studio and the other half on completion. The idea that we creatives should give away our ideas – then hope the client buys – then sign a contract to produce the work, send an invoice several weeks to months later – and hope the client pays – is a business practice for another time. We are not banks . . . MasterCard and Visa are. If clients want to finance their fees, let them do that on their cards, not with us.
And believe it or not, when we insist on our fees and collect them on time, clients will respect our judgment all the more – because they value what they’ve paid for.
And, if you’re worried about being affordable to small businesses and startups . . . there are ways to deal with that and still be a nice, flexible, reasonable person – and collect every penny (less that 3%, of course. But I’d rather have 97% of everything, on my terms, than anything else, and have to wait to get paid.)
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Acuity DesignsReply:
Hi Mary, thanks for the response – lots f great points in there. Do all of your clients take well to the thought of you automatically billing them for work?
I have found asking for 50% upfront can at times scare off some smaller clients who are a bit tentative about the whole process.
I completely agree that if you ask for payments on time and in full when they are required, clients subconsciously respect you more as a professional and the work being carried out. At times, we worry so much about ‘great customer service’ that we end up being too forgiving; when we need to remember – ‘its just business’
Mel
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hmm – Have been down this road far to many times for my liking. Have also taken a few down the legal route – but beware – I have been told on so many occasions that it's 'an open and shut case' by the legal team – only to find out that the offending company closes down, and restarts the following day under a new name – int he UK there's hardly anything you can do about this.
Surely the law should be there to protect US, not the people who have no intention of paying?
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I ALWAYS collect at least 50% deposit up front. When Finished i will send proofs but CLIENTS NEVER recieve the final project until the balance has been paid. It saves me the headache. If your clients are serious and as professional as you are then you will never hear a complaint about this method.
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EvandonReply:
THis goes to say that an ounce of PREVENTION is better than A POUND OF CURE!
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Acuity DesignsReply:
Hi Evandon, how would you deal with a client that pays the deposit and then works with you for a month using up your time / skills and then does not wish to pay for the final design? Do you always simply part ways? or do you pursue payment?
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I have completed work for a client who signed a contract and agree to pay the sum of 1200 way back in November 2009. Since then I have had £600 through in drips despite numerous excuses/promises etc. To make matters even worse, the client has used my design style AND got another designer to do the work, and she still owes me £600. Despite even more polite but firm emails etc., she is now not responding. I have now had to issue a court summons. Any suggestions please folks?
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Mel @ AcuityReply:
Hi Claire…
there’s a lot of things in what you have described that will work to your advantage. Firstly, you have a contract signed! Does the client have any points of contention: i.e ‘work not completed or satifactory’ / ‘personal differences’ / ‘work late’ etc? either way – hopefully your contract is solid against such claims.
The fact that the client has used your design after non-payment will not work in her favour at all. I am no solicitor, but it all sounds to me that you are well in your stead to receiving your owed funds. If she is a business as well – you will be entitled to late payment interest which can be calculated here: http://www.payontime.co.uk/calculator/index_new.html
Also, speak to your representation about recuperating administration and legal fees.
Best of luck!!!
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ClaireReply:
Thank you – this is really useful!
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I am having numerous problems with a client who has only paid half upfront for a job she was satisfied with and was completed in November 2009. After numerous polite but firm emails and various excuses from her, and also seeing that not only has she used my graphic design style and got another designer to do it (despite telling me she had designed it herself) I have had no choice but to proceed with court action. Any suggestions please?
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