When you worked for an employer, it probably never crossed your mind that your paycheck wouldn’t be sitting in your mailbox or on your desk every other Friday. But once you go into business for yourself, receiving steady paychecks is just one more security you trade in for being your own boss.

This article highlights what you can do when a client refuses to pay you for freelance or contract work. You should start by doing preventive groundwork—research the client and make sure the terms of the contract are clear. No matter how good things look up front, however, you may need to take extra steps during or after the project if the client won’t pay.
TechRepublic member Dara C. relates a story that, unfortunately, might be familiar to a few independent contractors out there:“I carefully spec’ed out the scope of the project and, when the client made revisions above and beyond the scope of the project, I quoted these revisions separately and had the client sign off on these quotes. I also had the client pay in increments (once a month) to avoid being ‘stiffed’ for the whole project. However, when I did get to the end of the project and submitted my final bill, I got an earful from the client about how unsatisfactory the work was and, of course, the news that they were not going to pay their final bill. I have since found that this client is using the work I did for them (contrary to what they’ve told me) and that they have a history of ’stiffing‘ freelance contractors.”
First, research the client
Contracting should be a two-way street: Your decision to work for a client requires just as much careful consideration as the client’s decision to approve you for their project. No matter how much you need the work, you should always do certain essential research into the client. Ask the following questions, and be very wary if the client refuses to answer them:

  • Do you do much work with contractors?
  • Do you think your contractors or other vendors would say that you have a prompt payment history?
  • Could you give me contact information for at least three of your contractors or vendors?

This request for references isn’t a question—it‘s nonnegotiable. If the client hems and haws, you can politely but firmly point out that:

  • You’ve provided them with at least three references in bidding for the project.
  • Unless they agree to pay you for the entire project up front, you are essentially extending them a loan—your services without full payment. If they’ll pay 100 percent of your fee before you start the project, tell them that you won’t require references.

If you land the project, set out the ground rules
If all goes well, by the time you sign with a client, you will have heard good things from several contractors about working with this company and always being paid on time. Even so, before you do any work, be sure that you and the client sign a contract, or at least a short letter, that clearly specifies the following:

  • The services you will perform
  • The fee for the project, if set, or your billing rate, if not
  • How you will bill (Hourly? By project phase?)
  • The period in which the client is expected to pay your invoice (Ten business days after receipt? Immediately upon each deliverable milestone?)
  • The interest and penalties for exceeding the payment time
  • A stipulation that if the client doesn’t pay within a certain period of time, you will be released from the contract with no further obligation to the client

If you bill hourly, submit your first invoice no later than one or two weeks after starting. If you’re billing a fixed fee, the client should be willing to pay you a reasonable percentage of the money before starting the project.

If this is a new client, if you haven’t been able to verify the client’s payment history, or if you just have a bad feeling but want to take on the project anyway, set a higher up-front fee—a third or a half of the total. If you’re billing hourly, you may want to ask for a deposit, which you will deduct from the amount of your first or second invoice.

Don’t wait for the client to remember to pay you. Even if the contract states that the client will pay you some amount on some regular basis, be sure to submit an invoice every time there is an amount due.
“This client realized that an independent contractor has very little recourse if they refuse to pay. I contacted a lawyer and had some threatening letters sent but, in the end, it would have cost me much more to pursue the client in court than the amount they owed me.”
So what do you do if the client won’t pay?
When your client won’t pay up, don’t feel like the task of getting the money you’ve earned will cost more than it’s worth. There are options available to help you out. An independent has many free or inexpensive resources for collecting from clients—from persistence to collection agencies to small claims court, where you don’t need a lawyer. None of these guarantee you payment, but they do provide you with a course of action. Start with requesting payment yourself, and then escalate if necessary.

Start with persistent but polite pressure
First, if the client misses a pay date and you’re still working on that project, notify your contact immediately by e-mail or phone and in writing that you’ll have to suspend work on the contract until you receive payment. Also point out that unless you receive payment promptly, you will need to find work elsewhere and may not be available to resume work on the project.

Start off with a low-key approach, and always be polite. Don’t ruin your relationship at this stage. Unless the terms of your contract call for immediate payment at this time, make a few inquiries in person and via phone or e-mail, and give the client a small grace period to pay you.

After no more than 30 days, call your contact one last time about the non-payment. Then start calling and writing other people in the company—from accounting to higher-ups who might be interested in learning that their contractor relationships are being jeopardized by late payments. Notify the client’s parent company, if applicable.

Accelerate: Get an agency
At some point, you have to stop being Mr. or Ms. Nice Contractor, but don’t be the bad guy yourself. Call in the dogs and get a collection agency. Clients who run small businesses in particular will not like the idea of being reported to credit bureaus because it will make it more difficult for them to get loans.

Don’t get taken by the collection agency, either. Although many agencies charge on a percentage basis or won’t take smaller claims, National Credit Systems, Inc., specializes in low-cost collections of any amount and boasts a 50 percent collection rate. For $20 or less per claim, the company sends five collection letters using the tone—diplomatic or stronger—you specify. If the letters don’t produce results, the company then lists the claim with the major credit reporting bureaus, including Experian, Trans Union, and Equifax.

If these tactics don’t recover your money, National Credit Systems offers the option of moving up to a commission-based collection service. Because other companies also offer commission-based services, you should shop around at this point.

You don’t always need a lawyer to go to court
If your work to this point is still fruitless, you may decide to commit a percentage of your claim to a collection agency, or you can pursue your payment in court. One option is arbitration, which is generally less expensive and faster than traditional court proceedings.

Depending on the amount, you may be able to recover all or most of the money due to you by filing in small claims court. If the money you’re owed exceeds your state’s small-claims limit, you can opt to waive the rest of the money. All the forms you’d need to file can be obtained from the clerk’s office of your local small claims court.

If you are owed a large sum and want all the money, you’ll need to file in municipal court. If all your papers are in order (correspondence with the client, contracts, and so on), the case is likely to be straightforward. It’s quite possible to win a debt-collection case without a lawyer. Or, you can consult a lawyer for advice without necessarily using the lawyer for courtroom time.

But you can’t win them all
Unfortunately, none of these strategies ensure success. Even if you don’t hire a lawyer, pursuing a client in court may take up enough of your time (which equals billable hours) that it isn’t worth doing.

At some point, you may have to simply accept your losses. I received an appalling story from a reader who requested to remain anonymous: He did an enormous amount of work for a huge national company. The company used his work but refused to pay for it. Because this company is untouchable by any but the most high-priced lawyer, he didn’t stand much of a chance of ever getting paid.

Sometimes, things just don’t work out. It’s a risk you take. If you were paid at least some of your money during the contract, count yourself lucky. If you do suffer a loss, you may be able to write off bad debt on your taxes and at least recoup some of the loss.
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Meredith Little has worn many hats as a self-employed writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.