The biggest hazard in the life of an independent consultant or freelancer is the likelihood that at some point you’ll have a client who won’t or doesn’t pay you. In my 17 years of independence, I have had two clients commit the crime of nonpayment. And just this year, I almost had my third. Having learned from the first two, the last one didn’t end badly—it ended up with the final check.
In my experience there are three steps that every consultant or freelancer must take to maximize the chances of getting paid:
1) Be sure the client respects and values your work.
2) Create a contract that’s specific about responsibilities, deliverables, and payments—these things shouldn’t be open to “interpretation.”
3) Make sure that you have an efficient accounts-receivable process in place.
The first step requires you to do more than just hear what the client is saying—you need to decipher what the client is saying. Here are a couple of examples:
- Client says “We need you and we need you now.” Often this means “We are desperate and you’ll suffice.” Making it worse, they may say “We’ll scope it as it goes.” (See step 2 above on why this is dangerous.)
- The person you are negotiating with is not willing to answer your questions about the work. In other words, they are only worried about their end of the deal. Enough said.
The second step is the one I preach about the most. Your contract is a legal document that outlines your responsibilities and deliverables and equates those tasks to a negotiated value for which your client will pay. So that means every word you write down to describe what it is you will do, you will have to complete to get paid. So be SPECIFIC.
If you aren’t specific you may lose payment because of the way the client reads your completion or non-completion. If they interpret something as not completed, then that usually means not compensated. By being specific, in what was almost my third nonpayment for services, I was able to substantiate my completion and was paid.
To fix the third issue, have a process in place for how you are going to invoice and collect your payments. Here’s mine (where most freelancers falter is #1 and #2):
1) Get some percentage of money up front.
2) Invoice promptly for payments at net 30 days.
3) At the 40th day of nonpayment, there should be a friendly conversation to better understand when the check will be paid.
4) At the 60th day of nonpayment, it’s time for a discussion about work stoppage.
5) Now it’s time to escalate things to a more highly placed executive, often in finance, or a project sponsor.
6) Present the contract in a form of review that highlights each party’s responsibilities and the status of execution for each party.
All these items have different possible outcomes, for which you need to have a plan. And because I’ve gotten very good at the first step I rarely have to do anything past #3. Part of your plan should also include the immediate depositing of all checks you receive.
Finally, note that all three steps also relate to being paid what you are worth. A loss of money from nonpayment is just one way to lose money as a consultant. By knowing your value, knowing how to substantiate your value, and how to go after what is owed you, you’ll have a bigger payday across the board.