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...
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 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.
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.
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.
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.
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.
>> 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 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.
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.
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 is known as the "Blockbuster Video" model for treating customers for being late. How did that model work out for them?
Dude, these are your CUSTOMERS. Yes, don't be a doormat and YES it sucks waiting 3 months for a check when you expect it in two weeks. But sending 10% a week interest notices for being as little as 1 day late is going to backfire on you. No matter how great you are.
And what will potential customers think of blog posts like these...
The real boon to the netflix model is that it doesn't make you consider individual decisions financially. Once you're on the service, deciding to see something, or keep it longer, or whatever, doesn't have financial implications, so you don't even think about it.
Once you're on the service, deciding to see something, or keep it longer, or whatever, doesn't have financial implications, so you don't even think about it.
Well, it does, though maybe people don't think about it. It's the "health club membership" model. Pay for stuff you don't use.
Just like people figure out they never go to the gym, at some point though some people (such as myself) realize, hey I'm paying each month for Netflix but I don't bother getting new movies (or get anything I really care for), so why not cancel and go for the a la carte Redbox.
When you are in the position of not being paid, you have no practical ability to distinguish between the two at the time. You are not the omniscient narrator.
Also, I'm not advocating being some sort of deliberate jerk or something. You should treat not-customers well too, because someday they may be customers, and that's probably especially likely in this case. But they have ceased being customers at the point of nonpayment, and it's important to understand that.
>> you have no practical ability to distinguish between the two at the time
That's BS. You talk to your customer and tell them payment is due. You then act accordingly based on the legitimacy of the response. Believe it or not, there are quite a lot of organizations that just pay on their own schedule (i.e., 60 days after receipt of invoice, regardless of terms), but they do pay.
Going adversarial at the first moment of non-payment (i.e., "they have ceased being customers at the point of nonpayment") is just a sign of inexperience and honestly, ignorant of how businesses typically work.
Read the original article again. If you tell him about those things up front, he'll work with you.
If you don't realize how easy the "check in the mail" excuse is for people whose job it basically is to sell you on that, consult for five years and check back with me.
This isn't adversarial. This is how payments work. Adversarial is not making payments you agreed to make. Adversarialness has already arrived. You need to react to that fact. Again, that doesn't mean "go directly to lawsuit, do not pass go", but you do need to correctly understand the situation.
The thing is the people who sign the contract aren't often working in the Accounting department and don't have a clue.
I've been consulting for over 10 years and have never not been paid. First, I don't take on every prospect who offers me a project, secondly, I don't overreact on late payments because I don't live "paycheck to paycheck".
On longer projects, I always state up front that I'll just stop work if an invoice is overdue by 60 days. I don't ask for deposits or make counterproductive late penalty threats. But the main reason why I get always paid is that all my customers need to pass my smell test. You can usually tell a nickel and dimer from the first meeting if you know what to ask and look for.
From what I've seen, the people who have the biggest issue with late payments are those who live hand-to-mouth. I've always told new contractors to make sure they have 3 months or more of living expenses before they even start contracting to accommodate payment cycles or interruptions.
--edit-- Hand-to-mouth is the worst situation for a contractor, because they're going to take on whatever projects are dangled in front of them, because of the urgency to pay the bils. When you do that, you end up with the customers with the worst payment records.
Some of it is gut feel. If a person's first impression on me is that they're a douchebag, they get an instant "thanks but no thanks".
But there are some more concrete clues. If they ask for bulk discounts on hours, if they ask to negotiate the rate up front, if they seem to talk "bigger" than they need to, if they think the work you do is "easy", if they act like they're doing you a favor by offering you a chance to bid on the business, etc., those are hints that money will be an issue or that they don't really value your services.
I never, ever, deal with small local businesses - i.e., those that don't seem to have owners with corporate backgrounds. Smaller business owners tend to not be accustomed to throwing around >$100/h for services. I'm generalizing, but if they're paying their staff $10/h, they expect 10 times the output for $100/h. IMO, those guys are trouble, run, run, run away if you can, because you'll get nickeled and dimed out the wazoo.
I'm not a fan of the 10% every week thing, but as someone who co-owned a web development firm, I can tell you we had a very simple contract with very clear terms about payment. If a big company wants to pay us on their own terms, then the agreement gets amended and everyone's happy. If they decide, after signing the contract, that they want to do things their own way, then sucks for them we wouldn't work on the project until we got payment.
So make sure your contracts say what you want them to say, and mention payment terms. If you're working with a larger company, chances are they'll mention the terms they use for payment. Either adapt your contract for that client, or find someone else to work with.
Be very careful in this situation, it's very easy for both sides to get confused which payment terms they are using. Make sure there is a single definitive contract for the project. Many companies you'll work with will assume they are using their standard terms, make sure it's clear that they are using your contract, and your terms.
Not when your have to pay the rent {insurance, child support, tax bill, etc} every month.
In fact, most of the more important creditors we have to keep happy to in order to keep our lives functioning are far less lenient -- and have far more recourse to make our lives miserable if we don't pay up -- than most freelances are with their clients.
I think the notion of having a steep penalty isn't necessarily bad. My problem is how he implements it. It's totally unreasonable to charge someone %10 if they're 15 minutes late. It's even more unreasonable to implement the same penalties for someone who is 15 minutes late and someone who is 7 days late. If he is going to be that strict, he should charge per day and not per week.
Think about it. If I forget to pay and he charges me %10, I'm probably going to wait the whole week to pay him just to make life harder for him as payback. This system over-punishes people who have just made mistakes and encourages and enables his customers to antagonize him.
If a client up-front with me and tells me that they will be late paying, then I'll usually happily give them extension. The problem occurs when clients ignore the invoice, or think that they can get away with paying it at their leisure (whenever that may be).
In practice, my clients have either negotiated better contracts paid on time (I've not had an issue with any client who's negotiated); or paid up the original amount as soon as I mentioned activating this clause.
I think a "city library" model would work better. Patrons don't get get to borrow books until they've returned or paid for the old ones. So as a freelancer, you would stop working until they pay you.
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?
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.
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.
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.
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).
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.
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.
Rather than going after late fees, I’ve found find it quite effective to offer ongoing clients a modest discount if they pay invoices quickly. For example, if our normal terms on a contract were 30 days, we might offer a client a couple of percent off if they paid within a week of the invoice date. This way, clients are at liberty to wait the full period if they want to, but it will cost them a little more for the privilege.
That seems to be enough incentive for a lot of places to pay early, particularly smaller businesses who aren’t on some fixed schedule run by a central accounts department. That in turn reduces the risk to my company, because typically we’ve only worked a little over a month before the corresponding payment reaches the bank, rather than having two full months of revenue at risk if anything unfortunate happens to the client.
Obviously this is all agreed up-front and terms are always negotiable, and for some larger companies this sort of scheme doesn’t help because you’re often looking at a longer payment window anyway. In that case, the basic rule is that the longer the window they want, the more the basic rate goes up and the bigger the up-front deposit before we start work.
I agree. This is an accounting hack when dealing with bigger companies. If you are a little contractor, beancounters will put you at the bottom of the heap to get paid. If you offer a discount for early payment, beancounters will put you back at the top of the heap to save a few bucks. I learned this trick from a plumber.
"Domestic attempts to use financial incentives for teachers to increase student achievement have been ineffective. In this paper, we demonstrate that exploiting the power of loss aversion—teachers are paid in advance and asked to give back the money if their students do not improve sufficiently—increases math test scores between 0.201 (0.076) and 0.398 (0.129) standard deviations. This is equivalent to increasing teacher quality by more than one standard deviation. A second treatment arm, identical to the loss aversion treatment but implemented in the standard fashion, yields smaller and statistically insignificant results. This suggests it is loss aversion, rather than other features of the design or population sampled, that leads to the stark differences between our findings and past research."
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.
Now that I think about it, I've noticed one peculiar thing. The more popular my blog is and the more general exposure I get in the tech community around here, the less problems I have with clients not wanting to pay or delaying payment.
Interesting how that works.
That said, I have never been able to collect payment upfront because I don't have a personal business and do things as an individual (there's some bureaucratic crap that prevents upfront payments for normal authorship contracts in Slovenia). And I have never not gotten paid completely, it can just sometimes take a few months longer than I would like.
That that said, circling back to my main marketing vehicle - the blog - building that has helped me be very picky about the clients I work with, which lets me avoid a lot of the problems.
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.
What happens if the author of the post is late delivering his work?
I'd like to see his full contract.
If anybody knows of "really good" rather than just "reasonable" contracts for programming contract work (perhaps involving retention of copyright/similar if client doesn't pay in a timely fashion), I'd love to see them. Please link.
I would bet the OP, while having no problem with late penalties on his own invoices, would have trouble signing a contract that penalized him for being late.
If he is late on delivering, I'm sure he would be in close communication with the client on the adjusted delivery date. This isn't the case for late payments.
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 seems overly adversarial. 10% per week is punitive; not representing any real cost.
What you should do is charge enough up-front (as a fraction of the invoice or a flat number) and bill frequently enough that a client stringing you along for a bill doesn't really hurt you.
You should also have a few clients going at once so that a few weeks late doesn't mean a few weeks of lost work, because at the first sign of a late payment you switch to other clients.
And for your regular clients, especially ones that have trouble paying quickly (perhaps due to corporate policies), ask for a retainer so you can keep their projects at a high priority without sticking your neck out.
Professionalism and respect go in both directions. Even large companies don't necessarily have a team of people dedicated to paying your bills instantaneously. If it's a good relationship and they value the project and you make it known that prompt payment is necessary to meet the schedule, they will pay promptly. If not, then no amount of punitive late fees will change that.
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?
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.
> 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.
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.
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.
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.
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 definitely ran into clients like this more than few times when I did freelance development.
I even once had a small restaurant owner ask for $750 back (after work had been performed) because his refrigerator broke and he needed money for repairs.
The types of clients who won't pay are generally not worth working with, and it takes time/experience to spot them before signing to work with them.
"Just pay me" is one of the reasons we're starting matchist (matchist.com): no more problem clients for quality developers.
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...
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.
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.
Although this might fly with some SMBs, this is not how multinational companies work.
In a typical multinational company there is an annual DPO (Days Payables Outstanding) goal, that shall be achieved no matter what. So unless a vendor has monopoly or has unique product/service, such approach will not fly [unless all such vendors have the same terms].
So if all software developers are using 30 days or 60 days terms, 10 days will not fly.
Until then, I would recommend a more constructive approach - use factoring. Don't know the cost in US, but certainly less than 10%. Increase your price by the factoring charge. Note that this might require you to update your contract and include right to re-assignment [check with legal person].
When our clients didn't pay us, we stopped all work on that project until we had their money in our bank account. That's really the best incentive: send out invoices once a month, and stop work on whoever doesn't pay you. People don't want to see all that money they paid go down the toilet. Getting 10-20% up front eradicates situations where people who don't want to send you the last payment for a finished project.
There's also nothing wrong with actually paying them a visit and politely demanding your money (only if they're in town of course). This can make you seem a bit more like you actually exist and you're not some piece of paper asking for money.
This is really the most professional solution in my opinion. Once payment is past due, then all work stops. If you have been consulting for a while, you can easily change gears and focus on something else.
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.
10 day payment terms is not compatible with my experience of freelancing for small & medium sized businesses. With corporate or government clients that amount is just not even realistic at all. 30 days is fairly standard. 45 or even 90 days is not unrealistic for larger contracts.
I also think that 10% per week late fee - though I certainly understand and sympathize with a freelancers grief - it gives me a somewhat unprofessional impression of a freelancer who is either not financially stable or just vindictive. When I hire somebody I like to feel that they will be around next month. A more friendly approach with long-term benefit is to just stop working with clients who don't pay on time.
To make your life more stable as a freelancer I can say from experience that you want to obtain repeat clients as soon as possible - clients who want you to work on either retainer, or at least agree to some minimum amount of hours per month. Over time get rid of clients that don't pay on time or are problematic in other ways. Once you get past that point freelancing can be a really enjoyable and profitable to earn a living. Until you get there, though, you can tend to spend a decent amount of time haggling and arguing about money with your clients.
Well. This has generated quite a conversation (both here, and on the blog post). I suppose I better clear the air, a clean up a few misconceptions. The following is pretty much a cross-post from the comments there:
1. The default terms are exactly that. Default terms. They will be discussed with clients before a project starts, and we will negotiate terms that suit us both. Think of it like asking for all the brown M&Ms being removed from a rockstar's rider. If a client is unwilling to discuss terms with me or unwilling to negotiate for their project, then either the project will proceed with these terms, or I may refuse the project entirely.
2. The actual wording allows me to implement the penalty at my discretion. I've had a couple of late payers, and often just the mention of the penalty will prompt them to pay. I'm not trying to destroy client relationships here - I just want to get paid.
3. A penalty for late payment isn't the only protection; that would just be stupid. Aside from contracts, I am very willing to refuse working for clients who I don't trust to pay on time.
4. This isn't something that I will just spring on a client at the invoicing stage. Yes, it's copy on my invoices, but that's there to remind clients of the agreement.
5. Negotiation is important. I realise that this is a re-hash of point 1, but it bares saying twice. I have contracts with different clients where different terms are enforced. The point is that these are default terms, which are there to protect me and my business. They are my starting point for negotiation. So long as you don't come at me offering "I promise to pay you on time" as a point to negotiate with (you can't negotiate with promises that you should be keeping anyway), then we'll figure out better terms for both of us.
In the time I've been working freelance (admittedly, not particularly long), I've had only one client who didn't want to negotiate a better contract, and that's because the work was "emergency" work (things on their site were broken, and they needed someone to step in and fix them so their business could continue). I made them aware of the conditions, and they accepted them.
Everyone else (who I've actually done work for since I implemented this) has wanted to negotiate a better contract. I've turned down people who refused to look at the contract, because I feel that they're probably not going to pay sufficient attention to the project, and I would have to fight them to get payment.
This isn't about trying to make big bucks on late fees - after a certain amount of time, I would write it off as a bad debt (as such) and hand it on to a collection agency, or call in the lawyers.
In my humble opinion, I think most these comments miss the root problem which is getting paid for the work. I know I am not supposed to plug own companies, but since we have been dealing with this very issue at the platform and process level, I will chime in with what we know. We decided that the way to go was pre-payment - ie work only begins when funds are in hand. The next questions is how to break down the chunk of work to make it easy for a project owner to pay and yet meaningful enough to the developer. We settled on a week's worth of time. Ie a developer in GroupTalent can submit a "sprint" of a week's duration working as many hours a developer would like to work in that week (most settle around 20-30hrs).
I am personally exploring a new twist in this process with the ability to force customer requirements into user stories and let developers charge for implementing a number of these stories in the same prepayment model.
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.
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.
I would never work with anyone who even proposes such terms. Not because I don't want to pay on time (we always do) but because those terms are unprofessional, to put it mildly. If you want to be treated like a pro, act like one.
Update: Having looked at your resumé, I probably wouldn't work with you anyway.
When I was freelance I was lucky enough to get paid on time. Every time. I attribute it to the communication I had with the client. I would speak or email the client everyday I was working on their project. When it came time to invoice them I would simply send out an email.
I freelance and bill my clients and get paid Net 30. The issue of late or non payment is not that easy to resolve just by slapping late fees etc. It really depends on many factors including your clients ability to pay on time (sometimes they depend on payment from someone else to pay them before they pay you), how big they are etc etc. My current client was late by about a week on my last payment and his reason was "my bank screwed up". I think either you go through a detailed contract listing every possible screw-up that could happen but most likely, late payments will happen here and there.
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 whole-heartedly agree with the terms, if not quite the tone. I've had to chase companies that had the cash to waste visibly for late payment. I've had to chase companies that wanted to change terms after there was acquisition interest. In both cases, I had to waste time chasing them down and I feel that the usual "net 30" scheme was to blame. The companies see the 30 days as a way to procrastinate after the purchase and the opportunity for a situation change to make things weird creeps in.
Dude, stop with the late fees and go check out www.zencash.com. It was built exactly for this purpose. Get a better receivables plan. ZC connects to your invoicing app and will send reminders on your behalf, or if you're really done with that customer, send the bill to collections.
It's not worth the stress, trust me, I've been there. Full disclosure: I just joined the team as DoP.
LOL love the doormat remark. It's so true. I think your payment system markup makes a lot of sense. People often do not fully appreciate that a lot of us do freelance for needed extra money, so their withholding of payment is actually pretty problematic for many of us. As long as your markup policy is written into the contract, I think your process is brilliant.
The way that most businesses and professionals outside the tech industry actually deal with this is quite simple, and quite uniform. Two percent (or thereabout) discount for immediate cash payment.
For example, 2/10 net 30 means 2% discount if paid within 10 days, otherwise full amount due in 30.
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....
When I contracted, my rule was to never lend the client more than 10 days pay. My clients didn't seem to have a problem with that - even a big multinational.
If your clients can't get their act together in 10 days offered to work on retainer.
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...