Should you ever compromise with a client who doesn't pay on time?
I have had a career in managing clients within big agencies and have dealt with various tricky and tough situations. I am now managing my own business and I'm dealing with my first tricky client.
I have used all of my experience to handle the situation but the person is still a problem. Basically they have said they would pay a deposit for a month and a half and the money has not reached us still. We have been given various reasons why. We have continued to work on their project. Crunch time came yesterday when they insisted we hand over the project (which is 70% complete) without the original deposit being paid.
Having been so flexible and reminding the client of the terms we work, we had to stand our ground and say we won't deliver until the payment is sorted. I asked for payment for all work done to date as it has dragged on and we've delivered majority of work. The client became a little aggressive and said they will only pay the deposit, not for the work done to date. They have also become personal saying they felt we were calling them a liar, questioning their character and being rude. Hand on heart I know this is not the case.
I have a paper trail - scope of work and cost agreed in a doc and email, and all discussions on email and some texts. We are meeting up face to face to exchange the deposit and discuss how we move forward. They are quite bullying in their demeanour and want everything on their terms.
Would like to hear peoples opinion on whether we should we try and work it out so we receive more money before we go further, take just the deposit now despite 70% of the work being done and hope the rest is paid on completion, or call the whole thing quits, cut our losses and risk them bad mouthing us?
My initial reaction is whether you took out a Credit Check with the likes of Experian before you started trading. Further did you draw the company's accounts and returns from Companies House to see if they were up to date?
There is nothing wrong with stage payments, however in this case the client is clearly taking the mickey (to put it politely). Really you should have stopped the work as soon as the first part had been completed and the client defaulted. The point of stage payments is to provide you with the funds to continue their work, as well as a test of their credibility.
The Deposit should have been taken on the exchange of contracts/agreements, so to a certain degree you have shot yourself in the foot. Secondly if part II of the contract had been completed and neither deposit or second stage payment not remitted, then you should stop the contract immediately and place the client on notice that if they do not bring the account to date, work will cease on the contract. That is exactly what you should do NOW !
As you say, you are 70% through the project, and I think it is time to tell them that unless payment is made for the first 50% of the project you will not continue further. Don't be threatened by the comment that they will take the work elsewhere; you are entitled to the money paid to date, even if they do take the contract elsewhere.
Place them on 7 days notice that if the account is not brought to date, you see the contract as breached and you will commence proceedings in Court to recover the debt to date. The most important things are:
1. The original contract indicating the stage payments was signed and you have a copy
2. A Certificate of Satisfaction/Delivery Note/Time sheet(s) to show the work was done.
3. This is where the account opening stage would have given you an insight- check the
accounts at Companies House to see what the balance sheet looks like, and what
their DSO was at the time of the contract being struck.
4. Arrange a meeting with the Managing Director or CEO of the debtor firm and tell
them that you are not prepared to carry on trading and the work will not be finished
until the first two installents are paid and if there is default on the third installment
automatically you will terminate the agreement and proceed down the legal line.
Even if you are dealing with a large PLC, do not be intimidated by size and assume that they will pay you eventually and that they are safe. In today's market, as we have already seen neither length of incorporation or "reputation" has a meaning anymore.
Again three years Balance Sheets and Profit and Loss will give you a guide as to the way the company is sliding. If in doubt: STOP.
Is the work done to date purely virtual, i.e. nothing you can reposess?
If you put a retention of title on the goods supplied then you can ligitimately recover those items.
In brief never compromise on terms of sale unless you are sure that the client will be good to their word. In your case clearly not.
Again 7 Days Notice to Registered address, (why not take a copy to the meeting and serve it on them there and then?) followed by termination and straight in to County Court to recover the funds. Depending on the state of the balance sheet, is it worth serving a Winding Up Petition/Bankruptcy Notice?
Sounds harsh, but it is in your interests, particularly if you are working on an operating overdraft which is attracting debit interest. You will soon find that the "fantastic contract" which you struck three months ago is now a loss because of the cost of servicing the debt. In effect they are using you as their operating overdraft ! You are not their bank.
I know this is a lenghty reply but you need to take this seriously and they need to be shown that.
The Credit Consultancy Limited
Well, this is a tough situation admittedly. It seems to be an unfortunate losing battle but I must say this, if you hand over the work they contracted you for then what leverage do you have to insure your payment? No one ever wants to take the hardline approach but it seems you have already made a concession and were willing to adjust your billing from your original deliverable schedule. Even still they seem to deflect from the facts and are intent to consider themselves the victims. I am sorry to say this is a hard lesson to learn in business because we all try to engage with clients in a trusting and long term positioning but trust earned works both ways and at the risk of being "bad talked" you must draw the line and insulate yourself from this in the future. I'm sorry to hear about the bad luck. Jim
In my personal experience, you risk not to be paid at all if you accept only the deposit and complete your job...
Sad to say but this has become a practice with struggling companies primarily due to their lack of expertise in managing their finances. I have experienced this a few times (even from regular clients), and the sad part is they find all the excuses in the world to blame you. Based on my experience, I cannot really say that there are hard and fast rules because in saturated markets like today one cannot afford to lose a potential client. But your question about compromising is tricky because the client has already gone to the lengths of throwing personal insults as you mentioned. And I personally find such clients not trust worthy, they just might continue to ''either exploit you like this, or bad mouth your company''. If 70% of the work equates with the deposit, then you are still safe. I would not like to continue working with such clients.
every problem has solution, in you case you have completed the work till 70% so ask them some time and revive the biz plan .recollect the data of your past information short list the priority list for redialogue your are through.
When you are doing a service based project, as it appears you are, beware of the "prostitute effect" ie...the value of the service is dimished if it is completed before payment is made. It's very hard to argue that your project is worth it's original payment if you haven't valued your work enough to stick to the original payment agreement. If someone hasn't put down the deposit, then you don't start the work.
This is a hard lesson that you only make a few times if you're going to stay in business. The simple response is: "As soon as the initial deposit is received, we'll be happy to begin the project." And let them know that if they miss the window they're supposed to pay within, that another project may take priority, because scheduling is tight, and it's important to meet their deadlines if they want to keep things running smoothly.
There are times when you need to be flexible: natural disasters, injury, illness or death of an owner, etc. However, be proactive about it, and set up special extended terms, or be ready to write off the job.
I'm happy for your Louise that is has been solved friendly, next time, do your calculations in a way that the deposit must cover your costs and a small profit, so when it comes to the point that you have to kill the project, you will not walk away empty-handed.
All of this could have been prevented with business policies which were communicated upfront in a formal proposal. And one of the first and most obvious policies is that work starts when the deposit clears your bank. Beyond that, the most important policy of all: don't work with bad people.
Get 50% of the project total cost in advance. That way your basic product costs re met and they have something invested in the process. But your not risking the companies ability to stay afloat. If they don't want to do that then maybe their business isn't worth your time.
Don't do it!! This client is clearly trying to bully you into doing all the work for free (or as little $$ as he or she can get away with). Think about it--you have done work without even the initial deposit. What hotel would reserve you a room, or tour guide get you a reservation, without having a deposit (or good credit card info) in hand? Stand your ground. Get the money for all you've done so far--and do no more until the check clears :>).