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?
Hi Louise, thanks for writing in. It is a challenging situation and in this day and age of rapid-fire information the risk of blow-back is considerable. First, I agree with all that you have done thus far except one thing- work should not have commenced without the deposit in hand. OK, it's done and gone but for the next time...the way that you are managing the client seems quite reasonable. You have said you are meeting face to face to square up the deposit and sort the rest. The first step will be to see how that meeting goes; their demeanor may change (for better or worse). This will have to be your guide. Based upon that 1) accept the deposit for work done and hand over the project as is; they did in fact ask for this or 2) accept the deposit and complete the project with very specific conditions set in advance including failure to pay clauses that will immediately result in termination of the agreement and no further deliverables to the client. Finally, should the client choose to "get back at you" take the high road. Trust in the good work you've been doing and will continue to do and let this episode serve as a lesson for the future.
All the best,
Not nice. My suggestion is to be direct with them. Ask them why they haven't paid what was agreed and explain that you wish to work with them but you cannot continue unless the account is up to date. If they remain aggressive, politely explain that that is not acceptable behaviour and that if the agreed payment is not made for the work carried out then you will have to take the matter to the small claims court (easy to do and fairly inexpensive). It sounds, at this stage, like you really don't have anything to lose, either way. Regards, Steve
Thank you everyone for your answers, they made me feel better! Good news, I met with them today and all was resolved. I brought along all the ammunition to the meeting in case I needed it, but luckily it was resolved in a friendly way, and they even apologised for their behaviour. I have now just been paid the TOTAL amount for the job, which we'll be finishing off this week.
In future, I am going to pause any work if a deposit is not paid, as the lesson learned.
You are not being looked at seriously and they are not valuing your company and time. Stick to your agreement. You may posibly loss monetarily at first however you could lose even more by agreeing to undervalue your company by bending. Best of success, Gil
Although even business relations are build on trust that should not imply you can just bend the rules at a whim.
I would personally stick to the terms you agreed upon. Take the moral high ground and perhaps get a PR advisor in when they in fact do start badmouthing you. In case your client is braking any legal agreements warn them of that fact and do not hesitate to take legal action if they do not respond.
I would stick to my guns. They need you more than you need them. Bullying tactics are unhelpful. Communicating that such tactics are not going to effect change is a good start. Calmly discuss that the agreement stated that payment would come with the work. You are providing a service. Make your own choices. If you need to cut your losses, that is an option that you might want to consider. Aiming to have a positive work environment is something worth pursuing. You need to make some tough choices.
BTW, when someone bad-mouths a business, I always consider the person that's talking and how much "weight" - character they have and question whether it is true or not. It sounds like your integrity is still in tact. Wishing you the best!
There is no perfect solution but sticking with few key rules should help a bit.
1. Ask for deposit before start work (probably a give and take of 3 days) ...you must afford to loose business
2. Ask for payment progressively - normally for big projects, I claim monthly; for some projects, I claim upon 50%, 70%, and 90% completion (normally, the last 10% is hard to receive on time). If I cannot receive money on time, I will activate debt chasing operation which are normally very effective.
As for your current sticky client - depend your nature works of the 70% completed and whether they depend on you for the balance works. Who is in control, who has the bigger call.
My general rules on this subject are:
1- Compromising is OK if the deal is still manageable.
2- If still manageable, then it must also be still profitable. The added cost to bend the rules just for them can be seen as another cost of doing business. A customer demanding more ongoing support from your company while still paying on time could be seen as more of a compromise than one that pays late, but is less demanding on your staff for example.
3- Over time always try and steer them back to a less compromising situation. This can be masked and structured in many ways.
4- Leopards in business rarely change their spots. If anything they will get worse if they know that they can take advantage of you.
Above all sometimes a little more give can still leave you in a better position compared to not having them as a customer at all.
Compromise may be reasonable under extenuating circumstances when it is clear that both sides are operating in good faith.This is not one of those situations. The client is already bullying you. What makes you think they'd pay you the balance due when the project is completed? If you wanted to, you might hand over the appropriate amount of work covered by the deposit and leave it at that. Or, just eat the whole thing and let it be a lesson not to begin work without a deposit. Either way, I'd get out now. Otherwise, you're likely to be opening yourselves up for a lot more aggravation, and perhaps no more money. Everyone has had an experience with difficult clients. I wouldn't worry too much about it. You haven't done anything objectionable, and they've probably got better things to do than bad mouth you.
Been there, done that. I charge a 50% deposit on all work. And insist on payment upon completion of the work. If they don't pay, in the case of building a web site, remind them once and only once, and then take their web site down. Make sure you do this in the presence of your legal counsel. If that client tries to sue you, make sure you have all your records concerning the non-payment at the very least, and hopefully, all your records dealing with this person. And take them out of small claims court if you can. The person owing will try to make a circus out of the whole thing, like you see on Judge Judy or any of the other court TV shows. If that person is such a cheapskate, make him go to district court or circuit court, and hire a lawyer. Also, make sure you have a clause in your contract and terms and conditions letting the client doing the suing that they have to not only pay for their own legal fees, but yours as well, regardless of outcome.
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.
I was going to write a lengthy response, but I read Ed Drozda's response and I think he nailed it. You're handling the client very well for the situation, but doing 70% of the work before the deposit is received equates to you taking on the risk you tried to avoid by getting the deposit in the first place. Take the high road, but don't release 70% of the work for just the deposit. This "client" is clearly taking advantage of you and you have to decide whether its worth it to deal with them anymore.
If a customer refuses to pay...they are not a customer. Deal with them accordingly. Why be wimpy? Are you really going to continue to do business with them this way? If you set that precedent, then you will always be plagued by slow/no pay situations.
Things I learned from the school of hard knocks:
Always be clear on the deliverables, get them to signs something as a show of acknowledgement to the terms.
Congrats it has been resolved. Learn from this situation and the advice many have given you. Always remember to CYA. Your are not their bank and you don't want to be their charity. Set milestones in the signed contract in which you must be paid and clearly state that if payment is not received work will stop and nothing will be delivered.
Include penalties and/ interest for non-payment or late payment. They can always waived. They give you leverage if needed and can be enforced in court if it goes there.
Hi Louise, I'd suggest, when you meet with them next time, to take into consideration the communication factor. Try an assertive approach - you can use this "formula" for assertive communication (as a response and not a reaction to the aggressiveness of your business partner): when you...(the unpleasant behavior: ex. talk like that to me, have this attitude, etc.) I/we/my team feel ...(ex.: I don't feel respected, appreciated for our work, etc.) so I suggest from now on to ...(and here you include the desirable behavior: talk respectfully, admit and appreciate our work etc.). This way you address the behavior, the other person does not take it personally and you're still stating your point of view. I hope it helps. :)
Dump them. It is not worth the TIME and frustration. The fact that you are posting here about them means you are worried, and now are wasting more time you could be spending with delightful customers. It will never work out. Get your payments as best as you can and just end it, you will feel the weight lifted, and will be able to better focus on your paying customers.
I had a problem with a client last year who decided they would pay me what they thought the work was worth and questioned the actual number of hours it took to complete the work on the invoice. I had a contract in place and the terms were net 30 days. They held off for almost 60 as I was constantly trying to get my $12K from them. It wasn't the first time they were late either.
After I got the e-mail stating they will pay what they wanted I couldn't believe it so my response to them was pay what you think now and I will have a collection agency get the rest of what was owed. Well I got a phone call from them minutes later apologizing and my cheque was ready that day. I have not done any business with them since as I have no time for this sort of client.
Your situation is different as you have not handed over the work until the terms have been met and that is what you should stick to 110%. We are in business to help companies but foremost, we are in business to make money. I say stand your ground and don't be bullied into anything. You have other clients and will get new ones so don't make this personal as there is "no sentiment in business". My mother taught me that rule when I was a young teenager and it's so true.
Best of luck.
Louise. Firstly, this sort of scenario is, sadly, not unusual. First thing is to take it as a learning lesson and don't let yourself get in to this situation again.
My advice would be to be polite but stand firm. Get the deposit paid, DON'T hand over all the 70% of the work--do you really think they'll be any better in paying the rest of what they owe you? I don't.
Don't go to the meeting on your own and make sure there is an agreed outcome from the meeting that requires a further payment.
I am presuming the payment terms were clear in the agreement you had and it's that simple. Is the 'client' more than one person? If so see who else you can speak with in the company, the CFO, owner (if the person you are dealing with is not one of these two people). Share your/their situation with them. There could be any number of reasons they are not paying so don't assume.
Did the person who signed the agreement have authority to do it...maybe not so they are covering their position; maybe they have cashflow issues, maybe they are serial bad payers (and you're not the only supplier in this situation)...etc
Welcome to the world of consultancy.
I work with top ASX listed companies (Australia) and small businesses and have learnt the hard way. Never had a bad debt...communication is paramount.
Louise, I am glad it was resolved favorably. I had a client that had been a good client and we had worked on several projects together. Then he stopped paying and kept me waiting on payments. He would request more work and I would make him pay for the remainder of the previous job and the deposit of the new job before beginning. Until one time the final payment was about $1400 and he was behind for almost a year. I spoke to my accountant and my lawyer and threatened collection and in addition I imposed a monthly late fee of 2% for the overdue amount. Eventually he paid because I took his website offline for non payment of his hosting fee. That woke him up. I told him I was not his bank and would not extend him credit and going forward I would be paid in full before work begins. He is still a client because he likes my work and understands that this is how it needs to be. My take away is that if they won't pay you and/or treat you in an abusive manner why allow yourself to be subjected to that, there are plenty more fish in the sea. But don't let them get away with it either. Get your money then judge if you need to get out.