Contractors' Questions: How to handle a client I suspect won’t pay?

Contractor’s Question: What should I do if one of the first clients of my Plan B is about to walk away without paying? The customer in question hasn’t paid my last two invoices and keeps asking for the working files to 'check my work' before he pays.

The customer’s stopped returning emails, notably when I pointed out that the payment terms of the contract state that files will be exchanged once payment has cleared. This UK-based contract is a long term, per hour contract, so I didn't ask for a 50% down payment at the start. Also, this is my Plan B’s first customer outside of Europe, so I’m unsure about seeking payment across international borders. Lastly, as I have yesterday sent the client mock-up designs for campaigns they are about to launch, I’m worried that he will amend or take these designs and materials, and then vanish. What should I do?

Expert’s Answer: If you have worked hard for a client and delivered excellent work, on time and in budget you can be forgiven for assuming your client will always want to pay you what is owed. Unfortunately that isn't always the case and dealing with these types of situations typically requires a calm, measured and proportionate response. This is especially critical if your customer is based overseas, as you will want to do everything possible to resolve the situation without needing to take expensive court action in a foreign country.

First some good news: if you are dealing under a contract then provided it has been drawn up properly you should be in a good position to begin taking action. If release of the completed files is tied to full payment then even better, as you can legitimately continue to withhold the final documents until such time as payment is sitting securely in your bank account.

Do not, under any circumstances, allow yourself to be cajoled, convinced or threatened into releasing these files without payment, as you will lose any leverage you have. This also applies to mock-ups of final materials -- make them as difficult to rebrand or reuse as possible by only sending ‘locked’ PDFs or similar non-editable formats.

Stay strong, stick to the terms of the contract and once your client realises you won't be coerced then chances are they will make payment.

Now for the bad news: you are right to be concerned when it comes to pursuing unpaid invoices across international boundaries as it can be difficult to know where to begin. Essentially, you have three choices and these would apply in any situation where the customer is based overseas.

This would include (but is not limited to) issuing standard payment demand letters/emails, regular phone contact, chasing payment and the like. The difficulty is that if this doesn't work, you will then need to ascertain if you can launch a legal claim from overseas and how much it will cost you. Such a cost should factor in both the legal fees and the revenue you stand to lose spending time on chasing this payment.

Having a local agent act on your behalf in the same country as your debtor is generally the best way to approach international collections. It often negates the feeling a debtor may have that you and your unpaid invoice are many miles away and, as such, can be safely ignored. The problem with going direct to an unknown supplier is that you face difficulties in confirming their legitimacy and legal status. Worst-case scenario is you could simply be swapping one overseas debtor for another, with the new debtor being much more conversant in avoiding payment!

This is the easiest solution as far as time and expense goes, as all you need to do is find a reputable UK company that can act overseas. All you’d do is hand the file for collection and then they would manage it on your behalf. This avoids the potential problems of differing time zones, language and regulations. However as with engaging your own local agent you again need to make sure you are dealing with a reputable firm. Ask for personal recommendations from others in business you trust and failing that, look for an established firm with public and verifiable references.

If you do go down the route of using a debt collection company then it is imperative that you confirm the following: that they do not require payment in advance; that there are no abortive or ‘admin’ fees if no funds are recovered, and that they will not obligate you to take legal action if you do not wish to pursue it. Good luck!

The expert was Adam Home, a manager at Safe Collections, a debt recovery agency that specialises in serving contractors.

Editor’s Note: Further Reading -

How contractors can get paid, if all else fails

Saturday 3rd Nov 2018
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Written by Adam Home

Adam Home is Managing Director of UK & International Debt Recovery Specialists Safe Collections. The company, founded in 1984, has more than three decades of experience in recovering unpaid invoices and contractual arrears anywhere in the world.
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