Freelancers have heard it all: “My client won't pay me so I can't pay you,” “I must have overlooked your invoice,” or — even worse — dead silence. Right.
Even the most experienced freelancers have had to deal with non-paying clients. Spending time and money collecting payments can limit your ability to work on paying accounts; and for freelancers flying solo, late payments can seriously jeopardize one's well-being. When clients don't pay, you have to have TACT.
Talk — The first thing you should do is talk to your client. Know that late payment is not your fault, but also understand when circumstances justify some latitude (such as a death in a family-operated business). Explain to your client that cash flow is just as crucial to your business as it is to theirs, and remain calm and polite at all times. Jumping to conclusions will only serve to anger your client, potentially delaying payment even longer and damaging your reputation. Don't lose an otherwise good client due to a misunderstanding, but don't be afraid to stand your ground.
Act — If talking to your client doesn't help, send reminder letters (collection letters) at 30, 60 and 90 days. Do not make threats, tell others about your predicament or take any aversive action; all of these things can get you in legal trouble. Instead, make it clear that the account is past due. If your client has ongoing work, tell your client that the account will be suspended until the balance is up to date. You can also consider hiring a lawyer or collection agency to handle this for you; but since doing so will probably end your business relationship with your client you should hold off on this until you've made reasonable attempts to collect on your own.
Court — If letters don't do the trick, you might want to try one last volley by talking to your client again. Let them know that you intend to take legal action if payment is not promptly rendered (but only if you truly intend to do so, since falsifying such threats can lead to legal troubles for you). In many cases, small claims court is the best option because it is relatively inexpensive and you do not need an attorney. For large sums, it's best to hire an attorney to help you chart the best course for legal action.
Throw in the towel — Unfortunately, sometimes even legal action won't get you anywhere; especially if your client is bankrupt, out of business or has flown to Rio de Janeiro to live high on the hog (on your dollar). At this point you have to weigh the loss in time and money from going after your ex-client versus the fee that is owed to you. Sometimes, it's just not worth it.
The TACT method is a blueprint for collecting past-due bills that stresses the importance of being kind and courteous to your client. Taking preliminary steps before legal action can save time, money and hassle (and perhaps even an account); but there does come a juncture when the courts should be called in to play.
More importantly, there are some strategies you can use to prevent late payment. These include:
Get it in writing — Before you perform any work, make sure you have a legally binding agreement signed and dated by your client that clearly identifies what work is to be performed and what the payment will be for that work. Your agreement should also outline what will be done if payments are late, including penalties, collection methods and state/county/city of jurisdiction. It's best to hire an attorney to help you draft a standard work order contract.
Impose rewards and penalties — You can offer rewards for early payment and impose penalties for late payment as incentives for paying on time. A 1 percent to 2 percent reduction or penalty is standard.
Retain copyright — Your agreement should clearly indicate that you own the copyright to any work until payment has been made in full.
Remind clients what you are paid for — If a client does not like your work, or you endure several revision rounds, and your client does not want to pay, gently remind them that you charge for your time and not their perception of your work. Your invoices should also be detailed. Don't use a simple line item entry that says “graphic design.” Be specific: “Logo design consultation/interview, research, four concepts, three revisions, finalized logo design deliverable in both color and grayscale .ai, .psd, .jpg, and .gif formats.”
Do a good job — Last but not least, you can't expect to sell snake oil and force someone to pay you for it. Make sure you do a good job for your client — happy clients are paying clients!
What strategies do you use to collect from non-paying clients?