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

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?

34 Replies

Michael Barnathan
5
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
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
2
0
Brent Laminack Entrepreneur
Principal at OpenFace Systems, Inc.
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.
Jens Zalzala
0
0
Jens Zalzala Entrepreneur
Founder, Head of Mobile Apps Development at Shaking Earth Digital
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.
Of course, I also don't know why they would make it an issue at this critical time. Bad time management skills, I guess.
Jens Zalzala
0
0
Jens Zalzala Entrepreneur
Founder, Head of Mobile Apps Development at Shaking Earth Digital
Brent, the contract mentions a percentage added to the total as a penalty. They don't really seem to care about that, and it's not really significant enough for me to justify doing it and delaying things further.
Michael Barnathan
6
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
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.
Tim Scott
2
0
Tim Scott Entrepreneur • Advisor
President, Lunaverse Software
>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.
Brent Laminack
4
0
Brent Laminack Entrepreneur
Principal at OpenFace Systems, Inc.
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
3
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
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...
Michael Barnathan
2
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
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.
Tim Scott
1
0
Tim Scott Entrepreneur • Advisor
President, Lunaverse Software
> [the penalty is] not really significant enough for me to justify doing it.

You mean not significant to you? That's not what matters. Any "penalty" might have an impact on their behavior.
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