Handling Clients Who Won’t Pay

A nagging problem this summer has been handling a client who ended up not paying me for half the consulting work done on his site. He’d paid half up front, but did not follow through when I sent him the bill for the remaining work.

When I first contacted him about his not having paid, he was open to the suggestion that we split the remaining half in half itself to be paid over two months. He said that finances were a bit tight after a recent move. After that e-mail, I sent him the invoice for the June half. That’s the last I heard from him. I tried to make contact numerous times, but he and his fiancée (with whom I’d also been communicating about the site) ignored me.

In the end, 60 days after the first unpaid invoice and more than 30 after our last e-mail exchange, I repossessed all the unpaid work done on his site.

I have backups in case he pays. In the final letter, I let him know again about my willingness to work on another payment plan and my ability to restore the site once paid in full. I can restore the site within minutes. But something tells me I’ll be listing my neatly-itemized list of unpaid work in my losses next tax season.

This got me thinking about how other freelancers and I handle our billing and how I can best prevent this sort of thing in the future.

What are a Freelancer’s Billing Options?

1) Ask for full payment up front.

This would be the easiest, right? You don’t have to worry about whether or not you’ll get paid or figure out a complicated system. While you might be able to get long-time clients to agree to it, they’re not the ones you’re worried about. The people who you don’t trust yet also don’t trust you yet.

If you can get a client to agree to a full payment up front, hold onto the money so you can refund it if unable to do the work.

2) Get half up front and release the work when it’s done and the 2nd half is paid.

This works better for some things than others. For example, I know a woman who designs swimsuits for competitive swimmers. She has the physical suits until paid, so it’s easy for her to ask for half (or nothing) up front and then receive the rest on delivery.

It’s harder when you’re selling your time or something you’ve created in a digital format. For instance, I wouldn’t have been able to repossess the site if my deadbeat client had taken the trouble to change the passwords and lock me out.

3) Get half up front and bill as you go.

This would have been a good option in my case. After finishing the part I’d been paid for, I could have billed for the second half, or billed item-by-item.

When you bill item-by-item or a couple hours at a time, it can get very tedious for you and the client. However, after delivering the first half to the client’s satisfaction, I don’t think it’s unreasonable to ask for the second half or part of the second half.

4) Get half up front and take your chances.

This is what I did. In a number of cases it’s worked out fine even with brand new clients. Some have been good one-time engagements, others have gone on to become good long-term clients. But sometimes it doesn’t work at all.

5) Use an escrow system.

I’m not going to go into the details of an escrow system (the link above does a pretty good job of explaining it). A basic escrow system is a third party that holds the client’s money until the client authorizes the freelancer to withdraw it. But the freelancer has power too, knowing the money is there and knowing that the client can’t just cancel the escrow, the freelancer has to agree to release the money back to the client. It forces the client to prove they can pay.

This might have been a good idea in my situation, since this was a large and expensive project.

6) Bill as you go.

With my longtime, trusted clients, I tend to bill as I go. We determine the cost beforehand, whether it’ll be an hourly rate or a one-time fee, and I send them a bill when we’ve reached a pre-determined point.

I don’t recommend this method with new clients unless you’ve agreed on a very low invoicing threshold, perhaps invoicing every 2 hours.

Is One Payment Method Right for All Clients?

The biggest mistake I made here was moving him too quickly into my mental list of regular, trustworthy clients (you know who you are, you awesome people!). There are a number of people, some who’ve entered into contracts with me, others who haven’t, with whom I have an ongoing professional relationship. Because I’m used to working for them, billing, and then being paid immediately, I put a little too much trust in him based just on his initial payment of half the cost plus his friendly interactions.

What are Your Options if a Client Doesn’t Pay?

What if your client, like mine, simply won’t pay and has cut off contact?

1) Write it off.

This may be the best for your mental health. Thinking about this person who owes you, wondering if you’ll get paid, wondering what to do next–it can eat away at you and your self-confidence. At times, it was hard for me to respect myself and my work.

Carefully document the loss so that it’ll be worth something to you at tax time.

2) Repossess.

Repossessing the site did wonders for my self-confidence. If you still have access to your work, carefully remove everything that hasn’t been paid for. Don’t remove anything you were already compensated for, that’s just revenge. Document what you took and send the information to the client. Let them know if/how they can have it when they’ve paid (if possible).

Don’t frame this as revenge or as taking from them. Frame it in your communication as repossessing the work because of non-payment.

While this is not professional tax advice, I believe you can still write off a loss against your business income even if you were able to keep the other person from using the finished product. You still lost your time and materials in creating it, even if they won’t get to use it.

3) Sue.

This is why small claims courts were invented. If your loss is great enough and you think a small claims court can make the person pay up (i.e. the person definitely has the money), you can sue. It’s possible that merely filing a claim will spur the client into paying.

You can find information about filing small claims in the 347 section of libraries that use the Dewey Decimal system (try the Reference section for the most up-to-date info). The NOLO series of books even has information about doing it without a lawyer. Laura of Green Panda Treehouse has written a Small Claims Filing FAQ based on her own experience in a small claims court.

What about you?

Have you ever had to deal with someone who refused to pay you after you’d done work for them? What did you do, and how did it affect your actions in similar situations afterward?