I have definitely had my share of clients that have been slow to pay, and am very thankful for having had the majority of my clients pay well and on time. However, I have had the occasional client that just doesn't want to pay, and I definitely know the feelings of helplessness and anger that drive the creation of this sort of policy.
My question about this method is more about practicality than anything else. Has the OP actually tried to enforce this? It's hard for me to imagine presenting an invoice for 150% of the original and not have the client fly off the handle and make things much worse.
I disagree with this post. The author is setting himself up for a bad reputation. Those unhappy customers that pay exorbitant fees will make it their business to tell others to avoid using the author.
I'm not a lawyer, but in my contract my attorney specified an interest rate of 1.5% per month for overdue invoices. That at first seemed absurdly low to me - I wasn't dealing with thousands of receivables. This was probably my only client, and that percentage rate was unacceptably painless for a defaulting client.
However, he said that there's a legal limit (in the US?) for interest rates you can apply to an invoice. Does anyone know the validity of this?
I have no idea if this is a law, but 1.5% per month is about 20% pa. I think that anything over 20%-30% starts to fall into the classification of "predatory lending" or similarly frowned upon practices.
As I said, no idea about laws but I wouldn't be surprised if this is against various industry standards.
The legal concept in called usury, and it varies by state. New York prohibits interest in excess of 30%.
States where credit cards are issued from have no usury -- Delaware, South Dakota, Utah, etc. States where you see retail payday lenders, "title loans", etc generally have high usury rates.
You need to be careful, because application of the law varies by state. For example, if someone is able to sue you under New York law, a judge can void the entire debt. Also, serving members of the military can have their interest obligation limited to 6% in many circumstances.
Generally speaking, a late fee should be an incentive for prompt payment, not a punitive measure. I would refuse to sign off on any contract with a vendor that such a capricious and draconian late payment policy. If minor delays in payment are a huge problem, deal with the issue up front and collect an upfront payment before commencing work. Sneaking in some excessive (and legally dubious) penalty is not good business.
1) Penalties for late payments are almost always governed by state contract law, not usury laws.
2) A strict limit like 1.5% strikes me as odd, since in many similar cases judges pull in all kinds of "fairness" questions, like what the market is like, and how much it would burden one party to comply with the rate / go without payment. So maybe the Lawyer was saying, "this is as much as I know I can get from a judge, so even though we might be able to squeak out another half percent, I'm going to call this a 'limit' so it's simpler," OR and this is a big OR, your jurisdiction has just stipulated this rate for your industry. States are wacky, who knows.
This won't work in practice. There are laws in place to prevent sky-high compounding interest rates, late fees, etc.
I would suggest that you simply take 50%, or some other large portion of the project, up front. Then, as you near a milestone, ask for another piece of it.
Billing at the end in one large chunk and then charging enormous rates just means you're not de-risking on the on set, and you're screwing a customer relationship.
Also, industry norms are NET 30, and some customers may even operate, and push, on NET 90 terms.
The reality is that almost no matter what you do, getting invoices paid is a hurdle and a pain. This isn't necessarily the clients being assholes or being cheap or being broke. It's just a law of nature.
It's not just invoices either. If you need clients to give you feedback, provide copywriting or do any other homework it can take too long. You'll walk out of a meeting. They will promise it by Friday. 3 months and 12 reminders later and you get it.
No. you're right it isn't universal. There are six clients that pay on time. two are yours. Two Swedish guys & a moroccan company pay on time and there is one german cannery that paid in a timely manner four times. All the rest are always late.
>> This won't work in practice. There are laws in place to prevent sky-high compounding interest rates, late fees, etc.
True, but payments for services rendered are generally not considered loans and usury laws don't apply.
If I was doing business with this guy, I would be upset with this policy:
10% per week, every week, starting from the first day that the invoice is overdue. That means that if your invoice is due on Wednesday, and by Thursday you haven't paid it, I'll charge you 10% of the invoice again on top of the original amount.
How is the following day 1 week late?
Also, I agree with you on the NET 30. He gives 10 days to pay, and thinks that is standard. Got to be kidding me.
No, he definitely means the following day. He continues:
If by next Thursday you still haven't paid, then that 10% turns into 20%. If you leave it for a month, congratulations, your invoice is now 150% of the original.
4 weeks in a month.. so:
day 1: 10%
day 7: 20%
..
day 30: 50%
It only works if he charges 10% the very first day it is late.
That's what each week or part thereof means - you pay for each week and partial weeks are rounded up to whole weeks (so one day = one week, one week and one day = two weeks, one month is four weeks and two days so would be five weeks and so on).
I agree with everything you've said. But I do know from experience that charging a reasonable late fee (not the audacious scheme OP uses) is a common, legal business practice that is effective at preventing certain types of delinquent payments.
If you are in a position to dictate this NET 10 or late fees conditions, then by all means, go for it. Work has to be paid. This can work well in markets where it works in your advantage. The only problems is that in many markets on can't enforce such rules, because there are many providers to the same service driving price and terms down.
Just out of curiosity, why does the author think that "kill switches" are a bad idea? Comcast will cut my internet connection if I don't pay the bill, so will other utilities...
Depends on what you're being paid for. It's one thing to do that with ongoing payments for an ongoing service. It's another thing to code a backdoor into a program you write for hire.
Would you trust someone who put a time-bomb in your business system?
That stuff is immature and unnecessary. You handle non-payment issue through the courts, not with vigilante justice. Have a lawyer draw up your contracts, and don't transfer ownership of the intellectual property until payment is made. If they don't pay, sue them for using your property.
With your system the longer the client doesn't pay the invoice the less likely he is to pay at all. Why is this a good system?
Are you going to write a blog post regarding your opinion on kill switches? I would be interested to read that :)
Why is your CSS in the head of each page rather than a separate file?
You rolled your own blogging platform because you think wordpress, drupal or joomla are over the top. Your website is using drupal, wouldnt it be less effort to just use a drupal blogging module rather than have a separate system?
In my experience the main thing you should do is make sure that your contract is absolutely clear on the fact that you own all work until it is paid for in full.
If you get into paying late / non-paying scenarios, the main thing you want is leverage and in most cases this is the strongest leverage you're likely to be able to gain.
If you have a contract, you're already well ahead of the game. Most contracts will include all of this sort of stuff for you, and all you have to do with non-payers is wave a threatening legal letter at them.
If there's no contract, the best that you can do is a cash leash (when they go over $x overdue, work stops) and set it low enough that you can cut them loose without losing your house.
That's right, but it would increase your cost of litigation substantially, since you'll have a much longer court case trying to prove that.
It's not something that you really want to rely on.
edit: Just an addendum - most of the deadbeat weasel clients know that verbal contracts don't carry a lot of weight, so the threat of being able to sue is really the important part. (Ideally you refuse the deadbeats upfront, but it's hard to tell sometimes)
This can't be legal in many places. Also, you'll come across as not very professional when trying to charge 150% interest on a month late invoice. Will seem like a scam to many. Surprised this made it to the front page. Imagine it was BofA forcing these terms on a mortgage for a family.
I recently had a non-paying web hosting customer. 3 Months without payment for multiple sites. Finally after numerous warnings I replaced her sites with a 'this account has been suspended' notice.
That's not exactly a kill switch. If you're hosting the web site then of course you can deactivate it if they don't pay.
I think he was talking about delivering a finished software product to be run on their hardware, but that has a backdoor that allows you to access and deactivate it remotely.
I am curious how this would work legally. Once you have delivered the product, is killing it remotely equivalent to maliciously breaking in and destroying property?
That could work - I'd be tempted to put a limit on it though - a 10% penalty (or whatever) immediately upon overdue, and a cutoff point where you simply send them to a collection agency.
Of course, in the end, you put what the law allows and your clients will accept....
I'm sympathetic to the idea that requiring prompt payment for work done is a reasonable thing. But ten days doesn't work in (most of) the real world.
For many people in a position of hiring contractors to do work, there are times when an invoice can sit in an inbox -- physical or otherwise -- for more time than that before even being opened, much less acted upon via a process that often involves multiple other people.
Most companies I've experienced would respond to a demand for a 50% late fee by paying the exactly the original amount, exactly 30 days after invoice, and simply never work with you again.
He says right on top that thats negotiable _upfront_. I usually have net 15 and am pretty strict on that. That means, I will call on that day and ask for the invoice to be paid. I also make it clear to clients that prolonged non-payment outside of terms will lead to a raise on the negotiation. I also make clear that if they cannot pay for whatever reason, they can just call and talk about things. The reason why the default number is low is pretty easy: clients will only go up from there.
I personally find the punishment extremely hard. 10% per week is definitely unreasonable. It would basically put that person on my "don't recommend that colleague"-list.
About companies not paying late fees: unless the contract is really beefy to start with, its also a quick way to ensure that good freelancers won't work with you again. Word goes around. I've seen more that one seemingly "big" company struggle with not having any business partners to turn to any more.
Break payments up into up front and milestones. Ditch any clients who are bad about payments. Worst case you are out the payment for one milestone, but you bought the business intelligence on who is a bad client to work for. I had to leave an Android startup that was at the top of the Market rankings, and getting tons of traffic due to that no matter what they did, due to issues like this and I am much better off for it.
Noom/Worksmart Labs would often "forget" to pay me some months, or "accidentally" pay me too little other months. They messed up paying my gym benefit for months once and I took over, then they argued for 10 emails and a a meeting when I asked them to contribute any amount at all. They'd frequently agree to do things like update the address I was paid at which I needed for immigration paperwork, then never do it because they wouldn't pay their accountant either. It was just hell working for them, and switching to other companies has been great. I actually get to focus on work instead of spending all my time seeing how the company is going to try to cheat me next and dealing with it.
Great article. I think the one hook in here for me was: This is about being a professional, and being treated as a professional.
One of the big things that has helped me is to include a clause in my contract that says "I'll deliver code when final payment is received." This mitigates a lot of trouble and usually helps to secure payment a lot quicker. The only caveat on this is that for client's whom I've developed a relationship with, I tend to ship code before final payment with a net fifteen window on the invoice.
I've found that I get dramatically better clients by requiring 50% payment up-front, and then invoicing weekly. People who balk at the 50% terms are likely to be problem customers, and are best avoided anyway. The weekly invoicing helps new clients understand how much software costs, and prevents sticker shock weeks after the project has begun. Once I have an established relationship with a client that I trust, I'm happy to relax the terms for everyone's benefit.
I've found the same thing. On occasion, I'll waive the 50% upfront deposit (or reduce it dramatically). I also don't have any penalty terms; they're a waste of time. If a client is not going to pay on time, they're certainly not going to pay the penalty %age if and when they do pay. Weekly communication is key. And, if you do end up with a client who won't pay, or consistently pays >30days late, you're better off without them. Fire them, politely, and explain why - then move on. There's no need to punish them - there is a great need to get the hell away from them.
There are lots of ways to ensure you are paid on time, being wholly unreasonable is not one of them. The key is to ensure that the invoice doesn't go overdue. Outline the consequences of late payment (work stoppage, no code delivery, no handover) at the beginning of the relationship, and work on terms that both sides are happy with. Tie payments to solid deliverables and send reminders. Bring hardcopy invoices to signoff meetings; if they don't pay it there and then, reschedule the signoff.
As an aside, I don't think your abusive penalty would be enforceable (in the UK anyway).
It wouldn't.
For a start, it sounds like this term is might(?) be listed in the invoice? But, even if it wasn't, it would most likely fall afoul of "consequences of a breach" and "unreasonable terms" of Unfair Contract Terms Act 1977.
All the same, however, that doesn't necessarily mean that he can't include it.
Not only that, but terms on an invoice don't form part of the agreement for the work and are not enforceable. The invoice is issued post-work and hence post-agreement. The caveat is if you include pertinent terms from the existing agreement on your invoices for informational purposes.
If they were in the initial contract, I think it can still hold:
"You can calculate the interest payable on overdue bills by taking the relevant reference rate and adding 8 per cent.
Alternatively, you can set a contractual rate that may be higher or lower than the statutory rate. If you set a contractual rate, the statutory rate no longer applies"
Interesting. The ability to charge a late fee is guaranteed by the Late Payment of Commercial Debts (Interest) Act 1998 which sets the statutory rate. Even though you could set significantly higher rates in your contract, the client might have remedy under the Unfair Contract Terms Act, where the supplier would have to show that the late fee is reasonable in relation to the damages sustained by late payment. Late payment is a breach of contract, so late fees have to be in line with the actual damages caused by that breach.
The basic problem is a power imbalance, and its result is that they tell you how they pay. So any proposed solution built on the idea of you telling them how to pay seems very much in danger of failing for exactly the same reason that there is a problem in the first place.
(Perhaps the main avenue to a solution is in freelancers acting collectively somehow -- thereby becoming more powerful. If clients risk being unable to find service-providers because those clients have been blacklisted, they would more strongly feel the value in paying-up.)
I bill hourly, and now only do prepaid work. Shameless promotion, but invoice issues are the reason I wrote Planscope ( https://twitter.com/brennandunn/statuses/226414132566585344). The more I can drill into client's heads that time == money, the less likely I am to get into invoice troubles.
I haven't had ANY issues since I made it clear that I'm selling my time and not a certain product, and that clients can see their current budget usage at any time. My current 6 month contract pays me in advance for 80 hours, and when he's about 20 hours from needing to fill up the tank again, I invoice him.
Over the last few years, I've spent WAY too much time chasing after money. I'm tired of it.
Have you had any clients not work with you because of the full up front payment requirement? Though I guess that would be a good indicator for problems in the future. I am thinking of switching to this for one of my current clients.
I've only had issues with one client, who is a national non-profit with procurement, etc.
The risk for the client is that you'll flake out. If you have a track record of being reliable (When I'm subbing out work, reliability and professionalism > technical capacity in most cases) then there's really no reason you shouldn't be getting prepaid work.
You're the one at risk. You risk losing the time spent working, which is non-renewable.
One time I had a potential client balk at my $50 late fee (applied instantly, then 10% per month interest on unpaid balances) during initial contract negotiation. It wasn't the interest that bothered them, but the $50.
I assume you're doing "work for hire", which implies that your copyright is assigned to the client in consideration for your wages. In your agreement, you could explicitly specifiy, absent payment in full, the copyright remains with you. (This is may be the case anyway.) That is, they don't own it without paying for it.
Late fees are critical. In some businesses the accounting department will manage debt by paying off vendors in the order of who charges the most interest. If you don't have a late fee, you get shuffled to the bottom of the pile and stay there. Accountants are generally hardwired to avoid penalties, so if they see there are penalties they'll pay before the penalty period (provided they have the money).
However I have found that if your late fee is high, they will simply pay the invoice and "forget" the late fee. And then you're left squabbling over the late fee, which is quite annoying.
Also note that I disagree with OP's interest scheme - in my case its a flat 1-2%. For a freelancer you don't want to tip the scales into lawyer-worthy disputes...
A late fee is a tool to encourage payment, if they ignore it and pay even just the invoice amount earlier than they otherwise would have you could say it has done its job.
As long as they pay the invoice, most people at that point will waive the late fee (providing it's not a very large sum of money as would be the case with the suggested 10% per week). I know I've done this in the past when a client has called me up after weeks of nagging and apologised for the late payment and the lack of a fee.
In addition, the late fee can come as a shock to the reluctant payer and spur an email expressing said shock. This is a great time to offer a waiver of the late fee if they pay by 5.
I'd go further than disagreeing with his scheme, there is a reasonable chance it is illegal to charge such an extortionate interest rate, and may constitute usury...
It’s perfectly reasonable if the rate is agreed on up front, though I wouldn’t charge 10% myself. Consider (legitimate) short-term loans—they have high interest rates to discourage abuse by debtors. Here, the author is perfectly willing to renegotiate until the deadline. Once the deadline is past, however, the client is simply in breach of contract, and ought to be penalised as such.
Wow. That’s very interesting. So the rate must actually be a reasonable estimate of expected loss. If you were to bill for the time you took out of your schedule to resolve the payment issue, it might work out to a few percent anyway.
In theory you can assess late fees and you might actually collect some.
But the truth is if someone is jerking you around on payment and they offer to pay sans the late fees most vendors will accept that and move on. In fact I've had people who claim to be filing bankruptcy (claim) and offer x cents on the dollar for any amount owed. In the end you make a decision do you want to take the money or go for door number two.
Legally entitled really means very little. What counts is the cost of enforcing the contract and the time it takes and any leverage that you have (like a kill switch as OP had mentioned)
how about instead of late fees, offering early payment incentives? A positive way to say if you don't pay by a certain time you will pay more. Interesting debate. Found an entire blog just on getting paid: http://blog.fundinggates.com. More focused on SMB but good advice for anyone freelancing.
Speaking from experience, Net 10 is totally unrealistic, unless you're working for one of those contracting, body shops...in which case, you're really just an employee of the body shop. Also, ProTip: the bigger the company, like say fortune 500, if you're truly freelancing/building your own business, hired directly, it's very common to get paid Net 90 (quarterly).
Edit: I should add, that if you're doing freelance for a small/start-up-ish/mom-and-pop company, it might be beneficial to get some form of retainer to do some work if you can negotiate that. Or, just stay away from this type of work all together if you can, as this is where I found most billing issues/collections in the past.
I'd also add, that I probably wouldn't hire a freelancer with a blog article like this on their site. It shows a lot of immaturity, lack of business acumen, and experience. Maybe things are different in Australia?
That was my immediate response - that 10% per week screams petulant and immature.
Yes, people paying late is bad, but it's also part of dealing with many large organisations. In cases I've seen the accounting department don't care what the local manager might have negotiated or even what the contract says, they'll pay when their (the accounting department) policy says they'll pay. They know that most people aren't going to risk their relationship with the company by charging interest or take legal action over what are relatively small amounts (next to the legal fees).
>> That was my immediate response - that 10% per week screams petulant and immature.
Totally agree that it screams of inexperience, and it's obvious that person lives hand-to-mouth. I pay my bills on time, and I would never hire that guy.
I always tell people starting contracting that they need about 3 months of "salary" in the bank, and a main portion of that is for cash flow coverage - in other words, the time it takes to collect on an invoice.
Having that 3 month float in the bank prevents you from taking every gig that comes your way. If, say, you're charging $100 an hour, don't take on customers who aren't used to paying that type of rate. The local business owner who is paying his staff minimum wage has little appreciation for the work you do. Chances are extremely good that he/she's going to nickel and dime you at every turn.
I've never not been paid for any contract work and haven't been negatively impacted by slow accounting (payment) policies because I always make sure I have enough of a float that allows me to choose my customers very carefully and not worry about the occasional late payment. I invoice net 30 and on longer projects, have a simple condition that I will stop work when an invoice is 60 days overdue.
If you really want to encourage early payment, then implement something like a 2/10 net 30, which is a 2% discount if the invoice is paid within 10 days.
Most larger corporations of a certain size would probably switch their agencies / suppliers / manufacturers over such a late fee construct. They'd laugh in his face and walk off. "Ah you have a problem doing business with us? We know 100 other companies that would LOVE to do business with us".
It's not unusual for larger companies to call for a 10% reduction after a couple of years. "Considering the size of our mandate, our generous contracts in the past, we think it would be appropriate for you to lower your prices in the future. By the way, last weekend I was at this cocktail party and my wife introduced me to John Lasseter. Doesn't he run ACME CORP, one of your competitors? Pretty funny guy that John... And smart!!!"
Of course you should never allow a business relationship to grow to a size where its rupture might impair the health of your company, but seriously, this isn't always possible.
Based on the most lazy of research sessions, I'd probably just sell the debt to a debt collector, and accept the minor cost which appears to be around 10%, rather than go though all the time wasting grief of doing it myself. One, programming time is worth a lot more than debt chasing time. Two, the emotional side some people feel when chasing debt can impact on the programming (whatever), and personal time. I don't work or function that well when I am all annoyed about something. Better to have the 90% and move swiftly on. Let some one else who job it is deal with it.
I suppose, it a personal decision, depending on what we are prepared to do and accept. Some people may be quite happy to chill out and wait, some need the money asap.
I guess it depends on a lot of factors, but the collections agencies I've worked with take a lot more than 10%. But you pay nothing if they are unable to collect. So if you were ready to give up on a client and write off the debt anyway, there's little to lose.
At my old company, we hired a stern-voiced hourly contractor to call clients with outstanding debts. She much more than paid for herself. Some invoices she couldn't collect on we sent to an agency, but honestly at that point they were quite old and the agency had a pretty low success rate.
> Some people think that building a "kill-switch" into their code is a way to ensure prompt payment (I don't; I think it's a horrible idea, but subject matter for another blog, at another time).
Such practices are flat-out illegal in some jurisdictions.
Just because they have no right to use the software, doesn't mean you can act maliciously. If they have no right to use the work, just ask for an injunction -- a legal kill switch.
There are some jurisdictions that protect software that's running in production. In the case of industrial control software, there can be serious safety considerations to shutting down software. I know this from a previous job with a vendor that constantly had licensing disputes with industrial customers.
I may not be remembering this correctly, but I think Canada is one such jurisdiction.
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[ 6.8 ms ] story [ 246 ms ] threadMy question about this method is more about practicality than anything else. Has the OP actually tried to enforce this? It's hard for me to imagine presenting an invoice for 150% of the original and not have the client fly off the handle and make things much worse.
Late-paying customers are just part of business.
However, he said that there's a legal limit (in the US?) for interest rates you can apply to an invoice. Does anyone know the validity of this?
As I said, no idea about laws but I wouldn't be surprised if this is against various industry standards.
States where credit cards are issued from have no usury -- Delaware, South Dakota, Utah, etc. States where you see retail payday lenders, "title loans", etc generally have high usury rates.
You need to be careful, because application of the law varies by state. For example, if someone is able to sue you under New York law, a judge can void the entire debt. Also, serving members of the military can have their interest obligation limited to 6% in many circumstances.
Generally speaking, a late fee should be an incentive for prompt payment, not a punitive measure. I would refuse to sign off on any contract with a vendor that such a capricious and draconian late payment policy. If minor delays in payment are a huge problem, deal with the issue up front and collect an upfront payment before commencing work. Sneaking in some excessive (and legally dubious) penalty is not good business.
http://www.loanback.com/category/usury-laws-by-state/
2) A strict limit like 1.5% strikes me as odd, since in many similar cases judges pull in all kinds of "fairness" questions, like what the market is like, and how much it would burden one party to comply with the rate / go without payment. So maybe the Lawyer was saying, "this is as much as I know I can get from a judge, so even though we might be able to squeak out another half percent, I'm going to call this a 'limit' so it's simpler," OR and this is a big OR, your jurisdiction has just stipulated this rate for your industry. States are wacky, who knows.
I would suggest that you simply take 50%, or some other large portion of the project, up front. Then, as you near a milestone, ask for another piece of it.
Billing at the end in one large chunk and then charging enormous rates just means you're not de-risking on the on set, and you're screwing a customer relationship.
Also, industry norms are NET 30, and some customers may even operate, and push, on NET 90 terms.
It's not just invoices either. If you need clients to give you feedback, provide copywriting or do any other homework it can take too long. You'll walk out of a meeting. They will promise it by Friday. 3 months and 12 reminders later and you get it.
True, but payments for services rendered are generally not considered loans and usury laws don't apply.
If I was doing business with this guy, I would be upset with this policy:
10% per week, every week, starting from the first day that the invoice is overdue. That means that if your invoice is due on Wednesday, and by Thursday you haven't paid it, I'll charge you 10% of the invoice again on top of the original amount.
How is the following day 1 week late?
Also, I agree with you on the NET 30. He gives 10 days to pay, and thinks that is standard. Got to be kidding me.
If by next Thursday you still haven't paid, then that 10% turns into 20%. If you leave it for a month, congratulations, your invoice is now 150% of the original.
4 weeks in a month.. so:
day 1: 10% day 7: 20% .. day 30: 50%
It only works if he charges 10% the very first day it is late.
That stuff is immature and unnecessary. You handle non-payment issue through the courts, not with vigilante justice. Have a lawyer draw up your contracts, and don't transfer ownership of the intellectual property until payment is made. If they don't pay, sue them for using your property.
With your system the longer the client doesn't pay the invoice the less likely he is to pay at all. Why is this a good system?
Are you going to write a blog post regarding your opinion on kill switches? I would be interested to read that :)
Why is your CSS in the head of each page rather than a separate file?
You rolled your own blogging platform because you think wordpress, drupal or joomla are over the top. Your website is using drupal, wouldnt it be less effort to just use a drupal blogging module rather than have a separate system?
If you get into paying late / non-paying scenarios, the main thing you want is leverage and in most cases this is the strongest leverage you're likely to be able to gain.
If there's no contract, the best that you can do is a cash leash (when they go over $x overdue, work stops) and set it low enough that you can cut them loose without losing your house.
My take on dealing with "Squirrel" clients here: http://teh.oarsum.com/posts/you_are_all_squirrels.html
If it's written down and signed, it's much easier to know what everyone has agreed to, so that is much better.
It's not something that you really want to rely on.
edit: Just an addendum - most of the deadbeat weasel clients know that verbal contracts don't carry a lot of weight, so the threat of being able to sue is really the important part. (Ideally you refuse the deadbeats upfront, but it's hard to tell sometimes)
Received payment that day.
Kill switches work wonders.
I think he was talking about delivering a finished software product to be run on their hardware, but that has a backdoor that allows you to access and deactivate it remotely.
Of course, in the end, you put what the law allows and your clients will accept....
For many people in a position of hiring contractors to do work, there are times when an invoice can sit in an inbox -- physical or otherwise -- for more time than that before even being opened, much less acted upon via a process that often involves multiple other people.
Most companies I've experienced would respond to a demand for a 50% late fee by paying the exactly the original amount, exactly 30 days after invoice, and simply never work with you again.
I personally find the punishment extremely hard. 10% per week is definitely unreasonable. It would basically put that person on my "don't recommend that colleague"-list.
About companies not paying late fees: unless the contract is really beefy to start with, its also a quick way to ensure that good freelancers won't work with you again. Word goes around. I've seen more that one seemingly "big" company struggle with not having any business partners to turn to any more.
Noom/Worksmart Labs would often "forget" to pay me some months, or "accidentally" pay me too little other months. They messed up paying my gym benefit for months once and I took over, then they argued for 10 emails and a a meeting when I asked them to contribute any amount at all. They'd frequently agree to do things like update the address I was paid at which I needed for immigration paperwork, then never do it because they wouldn't pay their accountant either. It was just hell working for them, and switching to other companies has been great. I actually get to focus on work instead of spending all my time seeing how the company is going to try to cheat me next and dealing with it.
One of the big things that has helped me is to include a clause in my contract that says "I'll deliver code when final payment is received." This mitigates a lot of trouble and usually helps to secure payment a lot quicker. The only caveat on this is that for client's whom I've developed a relationship with, I tend to ship code before final payment with a net fifteen window on the invoice.
I also agree with the OP that you get better clients as well.
edit: He also covers a lot more ground in terms of negotiating, having a contract, etc. Well worth the 38:40 to watch.
edit2: There's also a book - Design is a Job - which goes into even more detail. I have it, it's pretty good.
As an aside, I don't think your abusive penalty would be enforceable (in the UK anyway).
I would never agree to your terms.
All the same, however, that doesn't necessarily mean that he can't include it.
Not only that, but terms on an invoice don't form part of the agreement for the work and are not enforceable. The invoice is issued post-work and hence post-agreement. The caveat is if you include pertinent terms from the existing agreement on your invoices for informational purposes.
"You can calculate the interest payable on overdue bills by taking the relevant reference rate and adding 8 per cent.
Alternatively, you can set a contractual rate that may be higher or lower than the statutory rate. If you set a contractual rate, the statutory rate no longer applies"
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=10...
(Perhaps the main avenue to a solution is in freelancers acting collectively somehow -- thereby becoming more powerful. If clients risk being unable to find service-providers because those clients have been blacklisted, they would more strongly feel the value in paying-up.)
I haven't had ANY issues since I made it clear that I'm selling my time and not a certain product, and that clients can see their current budget usage at any time. My current 6 month contract pays me in advance for 80 hours, and when he's about 20 hours from needing to fill up the tank again, I invoice him.
Over the last few years, I've spent WAY too much time chasing after money. I'm tired of it.
The risk for the client is that you'll flake out. If you have a track record of being reliable (When I'm subbing out work, reliability and professionalism > technical capacity in most cases) then there's really no reason you shouldn't be getting prepaid work.
You're the one at risk. You risk losing the time spent working, which is non-renewable.
I was quoting a $10,000 project.
I didn't call them back.
However I have found that if your late fee is high, they will simply pay the invoice and "forget" the late fee. And then you're left squabbling over the late fee, which is quite annoying.
Also note that I disagree with OP's interest scheme - in my case its a flat 1-2%. For a freelancer you don't want to tip the scales into lawyer-worthy disputes...
As long as they pay the invoice, most people at that point will waive the late fee (providing it's not a very large sum of money as would be the case with the suggested 10% per week). I know I've done this in the past when a client has called me up after weeks of nagging and apologised for the late payment and the lack of a fee.
http://en.wikipedia.org/wiki/Penal_damages
In theory you can assess late fees and you might actually collect some.
But the truth is if someone is jerking you around on payment and they offer to pay sans the late fees most vendors will accept that and move on. In fact I've had people who claim to be filing bankruptcy (claim) and offer x cents on the dollar for any amount owed. In the end you make a decision do you want to take the money or go for door number two.
Legally entitled really means very little. What counts is the cost of enforcing the contract and the time it takes and any leverage that you have (like a kill switch as OP had mentioned)
A kill switch is pretty silly. All you need is "the copyright transfers on full payment for services rendered" in your contract.
Possession is 9/10th of the law.
Or as Capone put it "You can get more with a kind word and a gun than you can with a kind word alone."
Edit: I should add, that if you're doing freelance for a small/start-up-ish/mom-and-pop company, it might be beneficial to get some form of retainer to do some work if you can negotiate that. Or, just stay away from this type of work all together if you can, as this is where I found most billing issues/collections in the past.
Yes, people paying late is bad, but it's also part of dealing with many large organisations. In cases I've seen the accounting department don't care what the local manager might have negotiated or even what the contract says, they'll pay when their (the accounting department) policy says they'll pay. They know that most people aren't going to risk their relationship with the company by charging interest or take legal action over what are relatively small amounts (next to the legal fees).
Totally agree that it screams of inexperience, and it's obvious that person lives hand-to-mouth. I pay my bills on time, and I would never hire that guy.
I always tell people starting contracting that they need about 3 months of "salary" in the bank, and a main portion of that is for cash flow coverage - in other words, the time it takes to collect on an invoice.
Having that 3 month float in the bank prevents you from taking every gig that comes your way. If, say, you're charging $100 an hour, don't take on customers who aren't used to paying that type of rate. The local business owner who is paying his staff minimum wage has little appreciation for the work you do. Chances are extremely good that he/she's going to nickel and dime you at every turn.
I've never not been paid for any contract work and haven't been negatively impacted by slow accounting (payment) policies because I always make sure I have enough of a float that allows me to choose my customers very carefully and not worry about the occasional late payment. I invoice net 30 and on longer projects, have a simple condition that I will stop work when an invoice is 60 days overdue.
If you really want to encourage early payment, then implement something like a 2/10 net 30, which is a 2% discount if the invoice is paid within 10 days.
Or maybe he just has better things to do than hounding clients to comply with net 30 or net 90 terms?
I think the disinclination to contract would be mutual in your cases. And that's just fine.
It's not unusual for larger companies to call for a 10% reduction after a couple of years. "Considering the size of our mandate, our generous contracts in the past, we think it would be appropriate for you to lower your prices in the future. By the way, last weekend I was at this cocktail party and my wife introduced me to John Lasseter. Doesn't he run ACME CORP, one of your competitors? Pretty funny guy that John... And smart!!!"
Of course you should never allow a business relationship to grow to a size where its rupture might impair the health of your company, but seriously, this isn't always possible.
I suppose, it a personal decision, depending on what we are prepared to do and accept. Some people may be quite happy to chill out and wait, some need the money asap.
At my old company, we hired a stern-voiced hourly contractor to call clients with outstanding debts. She much more than paid for herself. Some invoices she couldn't collect on we sent to an agency, but honestly at that point they were quite old and the agency had a pretty low success rate.
Such practices are flat-out illegal in some jurisdictions.
I may not be remembering this correctly, but I think Canada is one such jurisdiction.