Avoid the quicksand of slow-pay clients
Some people will tell you that there’s really no such thing as a “bad” client….
But there are. You know the type — slow pays, no-pays, scope-creeps, and/or people who want to steal your time for free (with the promise of more paid work later).
I wrote a version of this post about a decade ago and decided to update it here. I hope it helps.
New consultants seem surprised by the amount of time they spend on business development. Their list of great friends from their last job doesn’t necessarily translate into actual contracts (referrals, maybe), no matter how interested they seemed in your idea when you left the company. Within a very short time, consultants in that situation start to get nervous — OK, they panic – and may make some decisions that come back to bite them.
Add a slowing economy to the mix – many businesses are looking for ways to manage their cash flow (a nice way to say, “hey, I’ve got an idea, let’s save money by not paying our vendors this month”). I’ve had clients like that — so have you. Here are a few things I’ve learned:
Don’t discount your rate in hopes of getting more business down the line. Set your price and stand firm. Rather than cutting your rate, look for ways to add value (this assumes your rate is reasonable). If someone expresses willingness to commit to a longer engagement, that’s one thing (if you’re going to have an hourly rate, also have a daily, weekly, and monthly rate that provides some kind of discount). But don’t just charge them less to try to get them committed so they “can see what you can do.” And another reason to be careful around this sort of client: I’ve found that the cheaper a client wants something, the more likely they are to also have unreasonable expectations that they’ll bring to the project.
Listen to your gut (or other people), particularly if the voice(s) is about the person’s willingness or ability to pay you on time. Put another way, be okay with walking away. My services are not aimed at everyone, so if I meet a prospective client that does not appear to be a “fit” I try to recommend someone else, but I don’t try to force the relationship.If someone has a history of paying late (or not paying at all), why would you think you’re going to be different? If what they’re saying sounds too good to be true, it probably is. You can’t put lipstick on a pig.
Get some of it upfront. Net 30 (or its really ugly stepsister, Net 60) means they may not cut a check for a month or two after you FINISH the work and invoice it. Unless your cash flow is great or you’re sitting on a pile of savings, that will get frustrating (and painful) fast. Many service businesses require their clients to put something down before they begin work. Be that person. Consider breaking the project into smaller projects, with agreed-upon deliverables. I normally ask for a 50% advance, with the balance due at the end of each phase, unless it’s a quick turnaround. Think twice about taking on more work until the balance is paid unless you’ve worked with them on multiple projects.
Be wary of a client whose primary skill is sales. He or she will convince you that you’re working for the greatest concept ever (“Huge, I tell you, we’re going to be huge. I have big investors begging me to let them in on the ground floor…How about I pay you less but give you stock?”). You’re going to want to believe this is the monster client (as Robert Shaw said in Jaws, “I think we’re going to need a bigger boat.”). It’s more likely that big fish is a minnow.
Collections take time away from doing the work or finding new business. It’s bad enough when you don’t get paid. Chasing them down is exhausting. Sending e-mails. Calling them. Calling them again. Carefully crafting more e-mails. Reading their e-mails that say all start-ups have cash-flow problems (“yeah, buddy, including mine, thanks to you.”) or there’s been a family emergency. Or something. It’s always something. Add up the hours you spend chasing them…or thinking about chasing them…or complaining to other people about having to chase them and you’ll find your discounted rate suddenly got uglier.
Define your project scope very carefully and get an agreement in writing. Discussions about a project in a conference room, by e-mail, or on the phone tend to result in less-than-perfect project scopes. Put it in writing with specific bullets about deliverables, timelines, objectives, and pricing and get the other person to send it to you. Don’t start a project — no matter how smoothly everything is going — until the paper is signed and, if advance payment is due (see above), the check arrives and clears.
Be the expert, not the vendor. Perception is reality and your clients are less likely to treat you badly if they respect your knowledge and experience. Frankly, it’s best when clients find you. That way they’re seeking your advice rather than you asking them for work. As a result, more value is put on your input and you have fewer issues.
Work with clients that are familiar with working with consultants or other “expertise” suppliers: tax professionals, estate planners, contract lawyers, etc. If you work exclusively with smaller businesses, you have probably found there are business owners that understand the value of paying experts, and there are business owners that don’t see the value of any specialists. A small business owner who does his own taxes is probably not going to be an easy partner.
Decide whether the juice is worth the squeeze. Yes, this is a favorite phrase of mine (particularly since I went to Syracuse) but you should at least think about whether your “C” clients will always be that way. You know the ones. Their names pop up on your phone and you take a deep breath or send a message that you’ll have to call them back, even if you’re not doing anything. In that case, size doesn’t actually matter. No matter how much revenue such a client brings in, it’s never worth the emotional and mental corrosion he/she inflicts not upon you, but your team as well
And now, I turn it over to you. We’ve all had bad clients. What do you do to avoid the problem?
