What to Do When You Don’t Get Paid

Posted: January 14, 2009 in Uncategorized

 

If you scan around my blog or my Bio for just a short period of time you know that I run a company called SQL on Call. SQL on call is a consulting company that has had many clients over the past year or two. In this time frame most of the experiences that I have had with clients has been great, and to think that I have made it this far without running into a major problem makes me think that we are doing the right thing. Yesterday I found out that a client was not putting us on the “priority list” to be paid, I was told straight out that since we would not “write off” and invoice from November that we would not be the first people that he paid.

This is the second month in a row where the client has requested that we either discount or write off an invoice. I was a little concerned when we did this last month, but now I am greatly concerned. See its not like I sell a product or that I will re-coop that money in the future, 90% of the invoice was from hours put in above and beyond to make sure that the client could keep their database up and running during the busiest time of year. These are hours that I could have spent with anther client and would have been paid for. The money that I make from that goes directly into the pocket of feeding my family and putting a roof over our head. So I started to think about what happens when you don’t get paid, what would be the professional behavior?

The first thing that I did was ask if they were satisfies with our services, and I was told by the CTO that they had no issues and they were very satisfied with the service that we provide them. The CTO went on to explain that the agreement/contract was a partnership between us and that we have received a lot of money from them over the year so we should be understanding, in when he asks us to right off a months worth of work. The more I thought about this part I was thinking that this is the same type of situation where a employer could go to an employee and just request that they not pay anything for a month yet they expect the employee to work.

I came to the conclusion that without being paid for the invoices that were outstanding I would have to take two drastic actions, first of all work would stop as of that moment even at the risk of losing the client. Second of all I was going to give them the option to stop our service. I did not want to be put in a position where in 4 months the same thing was to come up again.

End result was yesterday the client agreed that we offered a good service they were going to pay the invoices and continue with the service, however when I awoke this morning and checked my e-mail the opted to cancel the service. So do you think I did the right thing? Should I have been a little more forgiving? Just wondering what other people would do. I could not be forgiving because I have partners and I have made arrangements on those partnerships, but if I could have should I have been?

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Comments
  1. Andy Warren says:

    Chris, I don’t think you’re being harsh. One thing for a client to hit bad times and go to slow pay – there you do pay some weight on the relationship and the prospects of eventually getting paid to figure out what to do. To just not get paid for work is frankly ridiculous. It might come to that eventually anyway of course, but hard to believe they are asking. It would seem they don’t value your time investment.

    Im not walking in your shoes of course, but I’d be pretty clear about pay me, or we stop providing service. Just like the power company!

  2. I think you did the right thing. Not knowing the details of the agreement with your customer it is hard to say what else you could have done. Personally I believe the customer was being unprofessional. You have an agreement and then they ask, after satisfactory service is provided, for a discount because they have paid you well in the past? This makes absolutely no sense and sounds like they think you need them more than they need you. Customers like that I think you can live without.

    You may want to look at your contract language and refine it to better define each side’s responsibilities.

  3. Alex C says:

    Chris, you are a nice guy – so stop it. :)

    The answer is no. You could offer them added services for that invoice or discount (or credit) toward next bill. But I would never recommend working for free. Lets say that this customer is in electronics – then ask them for free products – lets see how that logic applies.

    I sympethize with the customer in that times are tough. And they probably did not have the state of mind to deal with this properly – heck, they only need to care about their business right now, not yours. However, not paying is *never* an option. They should know this.

    Now, moving forward, you think you will lose a client that doesnt pay? No sir, you have already lost them. Clearly the case with the customer – you think it was coincidence? They were trying to tell you that they could not afford you. Do you want customers that can’t afford you? Because if so, I’d love to hire your entire team, *all of you*, for $5 per hour.

    ok – so sarcasm and cynism aside – you have done your best sir. And I know the feeeling. You take great pride in what you and go through great lengths to ensure top not quality service so the logic becomes “how could they not just *looove the service and pay anything for it, its world class stuff they get!”. But this is how civilian life is. Its just business.

    End result: You are smart to have taken measures now, to prevent larger losses later. The cost of your energy on this (i.e. blogging, stressing, feeling down) are more expensive then that invoice since some customer can suck the wind out of us, that affects all other customers. Imagine losing 1 or 2 invoices accross the board! Ouch. And the cost to recover several accounts or onboard new ones – bigger ouch!

    Let them go. They can come back when they are ready (long as there are no hard feelings)

    Now – as we say in the Marines – there is no time to bleed.

    Lets move on. Looking forward to seeing you at this year;s conference! SQL on Call Rocks! Lets continue to do so.

    Regards,
    Alex

  4. chrisshaw says:

    Everyone,

    Thanks for the great comments. I felt in my gut I was doing the right thing, but you always second guess yourself, well sometimes you do. I think its great that you have left comments, Thank you.

    I feel better about it and I don’t second guess my gut reaction to it now.

    Chris

  5. Andrew says:

    While I see your other commentator’s points and I understand your perspective, I think I’m going to have to slightly disagree.

    Right now, you’ve lost a client, and all future revenue’s from that client, and they’re stuck with a bill they don’t want to pay (and if they continue to refuse, you’re only option is going to be to sue which is probably going to cost more than it’s worth). Meanwhile, they’ve lost a service that they clearly need. So both of you have lost out in this transaction, which is a lose-lose situation.

    I agree that simply forgiving the debt is a bad idea especially since that would just send the signal that they could renege on future contracts, which is absolutely the wrong message to send. They’d win and you’d lose in that situation.

    I think that a better approach would have been to work out an alternative payment schedule for that month’s debt. If this really is a situation where he didn’t have the funds to cover all of his debt, that would have given him an option that would have eventually allowed you to recoup the costs of your services while allowing the client to save face. If you could have done that, both of you would have gotten something that they want (although having to give up a bit to get it).

    Of course, going forward, you’d want to be very careful about future work. You would need to carefully spell out the clients obligations and scale the work to what the client is able to afford.

    Mind you, this advice is partially contingent upon your own situation. Is it worth the effort for you to deal with a client that’s having financial difficulties, or do you have enough work that you afford to permanently lose this client’s business? If you are swimming in contracts, then it may well be the case that you can do without. On the other hand, if you need every client you have, figuring out a way to meet this client half-way should be something you need to pursue.

    That said, a big part of the the equation is your intuition. You’ve dealt with this client and you have a better understanding of their character than we do. Do they seem like the sort of people who are just looking for a chance to get some retroactive discounts or do you think that they’re good people who are simply trying to weather a patch of bad finances? If you think that they’re grifters at heart, then dumping them is the best choice, but if they are honest people who are honestly having a bad time, then I think that cutting them a reasonable amount of slack can be good business.

    Ultimately, that needs to be the fulcrum of your decision in these circumstances.

  6. Chris,

    I think you did what was right by you and your company. I think that this particular problem shows the degradation of society that plagues the world we live in. You should do the work for them just because you are a nice guy and they have done loads of business with you this year? Give me a break. I had one issue with some contract work last year where I had problems getting paid. The good thing in my case was it was for C# development and I hadn’t provided my source code at the point that I realized I was having problems getting paid, only QA builds which had code flags built in locking the functionality down (per the clients request). So I held the source code until they wanted to pay. I hadn’t been paid for the time it took to write it, so I was not contractually obligated to provide it.

    Fast forward two months and they got desperate to have the portion of code I wrote in use, and they finally paid the bill. I have not done any work for them since. I got other things to do with my time than play games getting paid for agreed to contract work.

  7. John Pepper says:

    Hey Chris,

    Having just gone through a similar situation with a client I can vouch for the fact that those situations are not fun and, are thankfully, the exception to the rule.

    In my circumstance the client approached me with the issue of invoicing because their clients had funding issues and the project we are in the middle of suddenly became a cash issue for them – their request, please cut the billable rate, if possible. In the end I agreed to do so simply because they have always been a good client and so far we’ve had a good win-win relationship. I want that relationship to continue so I did what I thought was right to help them while still keeping bread on my table.

    In reading your post, obviously your situation is different, but I think you should have at least asked for an alternative payment schedule before cutting the chord. I’m not sure how successful that would have been given the way they seem to be looking to not pay your bill, but at least you could have said you tried.

    Cheers! Best of luck,

  8. Hi Chris –

    Welcome to the business world. There is a lot of merit in what everyone has been saying especially in the fact you should try to make the difficult situation a win-win rather than lose-lose.

    A potential solution could have been negociated on a go-forward basis with something you can live with like starting next month you’ll credit him back xx% for every PAID invoice dollar.

    I find in the Technology sector, company’s invoice their clients monthly and usually with terms of Net 30 Days. Depending on your base rate this can work up to some serious dollars floating in your Receivables.

    It has always been my practice (25 years now) to invoice my clients on a weekly basis and keep my Terms as short as possible. I usually go in at Net 7 Days and end up with a negociated 15-21 day terms. By invoicing weekly, you will:

    • Increase your cash flow
    • Reduce client “sticker shock” issues
    • Have faster visibility to payment issues
    • Reduced risk
    • Stronger legal position if it comes down to that
    • Increased communications and updates with your client

    The old saying “It is not what you know but who you know” comes into play with all this as well. If you are communicating weekly with your clients then you should see issues heading your way and be able to adjust your position to best suit you and the client.

    A personal favorite of mine is to get to know who handles your invoices in the Accounts Payable Department. Chatting with them periodically also provides added insight into what you may be heading into as many love to chat ….

    In today’s wild and crazy markets it is even more imperative for you to communicate more with your clients and work on building that “Team” spirit.

    BTW – The CTO in question was completely wrong in doing what he did with you regardless of his Company’s position.

    Best of luck

  9. Steve Jones says:

    Chris,

    Glad you pushed them and hope it works out well. I’d consider weekly invoices, or even billing in advance, asking for payment up front for a week’s amount of work.

    Clients sometimes don’t think that they’ve gotten anything for their IT bill since we’ve pushed bits around, or done work to keep things running. This happens to doctors and lawyers as well, which is why they have that sign: payment is expected when services are rendered.

    I’d also be expecting this client to leave, so don’t depend on them much.

  10. DavidStein says:

    I think you did everything you could. Depending on your situation, do you really want to keep a client who doesn’t want to pay you?

    The truth is that people like us provide a service which makes it difficult to collect payment. You can’t demand that all of your SQL optimizations be removed due to non-payment.

    I think had you buckled, you would have gotten hit up for another huge loss in the future.

  11. Tim Shay says:

    If you have the extra time to spare, carrying a client that wants a reduced rate for services isn’t a bad thing… it’s better than spending the time waiting for something to do. They’d have to expect reduced availability and services as well. But if your plate is full of clients paying the set market rate for your services, it’s just hurting *your* business if you carry them, and it’s just good sense to do what you did.

  12. Andy Black says:

    Maaan, they make my blood boil.

    The CTO showed his true colours by reasoning that they need not pay for a month’s work since you “have received a lot of money from them over the year”. I presume that’s because you did a lot of work for them over the year, so what’s their point?

    They are satisfied with your services and have not offered an alternative compensation plan. They can’t suddenly change their terms and state that they’re now in a partnership with you (I presume this is not what you agreed with them otherwise you wouldn’t have made your blog post).

    As an earlier poster mentioned, you don’t need the stress of dealing with a client like this. Spend time with the clients you enjoy working with, and who respect you enough to pay you as agreed, or are at least big enough to flag problems with you and try and work out an alternative arrangement.

    Learn from the experience by putting measures in place so that it doesn’t happen again and how to deal with it when it inevitably does.

    I believe Warren Buffet is a firm believer in putting all you eggs in a few baskets, and watching them like a hawk. …and also in only working with people who he likes and gets on with, since he’ll be spending a lot of time with them.

    Best of luck.

    PS: if they have an emergency and are desperate for your services I think you’ll find they suddenly have the cash to pay the month they owe you if it means you can help them out.

  13. James Stover says:

    You could always demand a retaining fee. Place the monies in escrow and use it as insurance against non-payment. Once they pay their bill, they get their monies refunded (less the escrow fee). I know it’s non-standard but you can’t give away your services to deadbeat customers and expect to survive.

    • chrisshaw says:

      The retaining fee is something I am starting to consider. I do vaule honestly and integritiy. So I am not sure if I will result to that. I think I will stand firm and see what happens. If I see it again I am going to have to do something to protect myself.
      Thanks for the comments

  14. A “customer” is someone who pays for goods or services. A “leech” is what you encountered. When they encounter an emergency, get your back money first, not just a promise to pay it if you help them out.

  15. Chris J says:

    It is disappointing that this is becoming a routine event. We experienced a fairly new customer a few years back who called Christmas Eve with a crisis request. Multiple individuals worked over the holiday to ensure business was as usual after the holiday. Paying us was not a priority for them. We continued to invoice the company for the work, but we did not hear from them(over a year) until another crisis occurred. We had learned our lesson, but had not broken the the relationship (they still owed us money). We required payment for the previous work and pre-payment for new work. I am sure they were having finacial difficulties but that was not our responsibility. It was an emergency and now paying us was a priority for them. The company hesitantly agreed to the conditions. We received the back payment and completed another project prepaid. After the work was completed, we agreed that this will be customer we could do without. Prepay was now required and the rate was increased substantially. Problem solved.

  16. Tom Bizannes says:

    You are being too nice…

    Once the word is out that they don;t pay, their reputation will be such that no-one will deal with them.

    When I used to be a debt collector, (before being a sql specialist) once a client got blacklisted, it didn;t take long before they went out of business or paid you so they could get back into business.

    You just say you are going to call their bank and let them know they are in trouble…in no time they will pay you!

  17. nd says:

    If they come back you should charge them 5x more.

  18. chrisshaw says:

    I do have an update that I will post tommrow. But I can promise they can not pay me enough to work with them again.

  19. Bryan Smith says:

    Chris I think you did the right thing. You talked to their people, you talked to their CTO, you clarified that they were satisfied with your work, etc. The short of it is some companies do not have integrity and I’m a firm believer in firing a client. Because once they do it once, they’ll do it twice, and keep on doing it.

    The difference with this client and one who has integrity but is in a poor financial situation, is one with integrity would have sought a resolution that was helpful/fair to both sides. They could have just as easily asked you for revised terms, or a payment plan instead of asking for you to do it pro bono. So sure, if they had integrity and treated you fairly when you worked for them, then by all means, cut them some slack. But not when they start demanding you give them free time after you already did the work and they agreed to your terms.

  20. Aaron Alton says:

    Chris,

    I think I had the very same client ;)

    I definitely agree with the balance of the posters. One thing that you might want to consider is discounts on prepaid time. If you’re not charging enough to allow for discounts, put through a price increase (say, 10%), and at the same time introduce discounts on prepaid time (say, 10% :D ). The discount applies as long as the time is paid for prior to the service being performed, so encourage clients to purchase a reasonable block of prepaid time (for example, 20 hours at a time). You’re still offering the same great service at the same rates, but at least if they opt to go “on terms”, it’s on their dime, not yours! Reality – it takes a lot of effort to collect and track receivables, and that’s time that you could spend bettering yourself professionally, so you can offer even better service to your clients. Once you attach a price tag to terms, I find that most people go prepaid.

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