Prying funds from a client trying to stiff you

From Mike Holland, Atlanta, GA

We are going threw something similar with a client right now… they owe $12,000 for a months worth of services, and $28,000 in cancelation fees. Our contracts are iron clad, we have everything documented, and are going into forced arbitration in two weeks. Yesterday, their attorney called and asked if we would except payments.

Although we are a Managed Services / IT Consulting firm, for large projects we push for a retainer up front, and then bill twice a month. If for any reason they are late on a payment – Net 10, then we stop work immediately. Prior to signing any contracts we do a credit check on them to try to verify cash flows. Also make sure that your contracts state the forced arbitration, late fees, penalties, etc.

I also agree with the statement you own the work until paid in full if you are a software developer.

Regards and good luck!
Mike Holland
Managing Partner

Net-Flow Solutions

From Julia eCompetitors, New York, NY, www.ecompetitors.com

In today’s situation many small and mid companies have the same problems. And in my view, you may make them feel sorry and obligated to pay you back.

From Daris Pugh

the fact is it is already a loss…most company would charge it off and take it as a tax lost. which would probably get you something back on that end but in your case something is better then nothing

From Warren, Los Angeles, CA

You could also consider trade credit insurance. This insures against slow pay, no pay, and/or insolvency. Euler Hermes ACI has a policy that would cover this sort of 'bad debt.'

From Dave, San Francisco, CA

Ordering goods and services without paying for them is considered income and may potentially be considered fraud. You may be able to inform your client that you intend to file a 1099 form to the IRS. They will have to pay income tax on that balance if they don't resolve the matter. You may be able to contend fraud if you feel that the company never intended to pay you in the first place. Unfortunately, the burden of proof will lie on you. If you have a contractual agreement, pull it out and review all the terms and conditions associated with your retainage and enforce all terms of the contract including payment terms. Your lawyer should be able to advise you on these suggestions. Your accountant, if you have one, should be able to advise on the tax matter. State Tax laws will also apply depending on where the work was done.

From Mark, Chicopee, MA

Some courts throw out legal fees, collection costs and penalties unless they are specified before work begins, or at least on the invoice. Be sure your terms are shown on any credit applications, invoices and statements or are written into your contract. Also, get personal guarantees allowing you to go after owners, not just the business (depending on type of legal organization).

From cw, Texas

Before you take this approach, make sure you don't want to consult for this client anymore. When you start talking demand letters and legal action, that will sour a client relationship pretty fast. How long overdue is the payment?

From Spock_rhp, Miami, FL

Your demand letter needs to remind the slow payer that they are also liable for reasonable costs of collection. If you already have an attorney lined up, mention the size of his fee — 25 to 35 percent added on should get the attention of someone with authority in their financial operations.

And don't do business with them any more. If you feel you must, demand half the payment in advance since they're a proven "slow pay" and add contract language specifically authorizing 35% extra for collection costs on any bill more than 90 days past due.

If they get huffy about it, give copies of your correspondence to any likely replacement contractors — that'll put the squeeze on the deadbeats because no one will want to work for them since they don't pay.

From Linley, CT

1. Your work for hire agreement should state that you own the work products until the client has paid in full.

2. Stop working until the balance is settled.

3. Credit check your clients, pre-pay for anyone but Warren Buffett.

From Dave Andrews, Dover, DE

Wile I agree with Adriana Gardella in her methodology, most law firms are not going to be able to assist in collections. To be honest most law firms I deal with in the collections industry shy away from collections as there's very little immediate revenue in it for them. Look up the National Association of Collectors on the internet. They should be able to refer you to a local agency that can take your receivable on a contingency basis. Additionally you will want to provide that agency with as much supporting documentation as possible including your agreement that does not contain the "pay when paid" clause as your debtor is trying to use. Debtor companies assume that when you retain an attorney as your first avenue of recovery it's usually just to issue a stern collections letter, and then the creditor will engage a collections agency. Engage the agency first, then go the attorney route if that fails to generate payment. Hope this helps.

From dave milwaukee wi

Ya, Your screwed. I had a design buisness with the same problem. If there is nothing to reposse you have no leverage. I turned it over to a collection co got nothing.
You can go to court but if the co has no money there is nothing to get