Contractors' Questions: Should a sub-contractor invoice me or the client?
Contractor’s Question: It’s only week one of my ‘Plan B’ and already a potential client is on the scene but they also need some systems integration done, on top of my design work. I have a couple of freelance integrators I could work with, but how would I go about invoicing the client? I have told them that I would be working with another freelancer if they need integration doing.
Would I invoice the client for everything and get the integrator to invoice me, but then risk having to pay him even if I'm not paid? Or would I ask him to invoice the client separately through me?
Expert’s Answer: When it comes to invoicing, the general rule is that a supplier can only invoice a customer that they have a contractual relationship with. This can be a difficult balancing act in the situation you describe when more than two parties are involved.
As you correctly identify, if your business engages the integrator to do the work and subsequently invoices your business, then it is your business that is liable for the payment as your business holds the contractual relationship with the integrator.
If, for whatever reason, the client does not pay you, then your business would be losing out twice -- once for the unpaid work you have done -- and again, when you have to pay the integrator.
You could theoretically include a ‘pay when paid’ clause that states the integrator will only be paid on receipt of funds from the end-client, but we would not recommend this. These clauses pass the risk of non-payment on to the supplier but do not give them the chance to conduct any ‘due diligence’ to identify the credit risk. Such clauses are, in our view, toxic to a well-managed credit control process.
Alternatively, you could introduce the integrator directly to your client and they can form their own contractual relationship, removing any obligation on your part towards the freelancer for payment. However, this would have to be accepted by the client -- some will only want to deal with one supplier.
The solution we would recommend would be to secure a deposit from the client that covers the fees for the integration work as an absolute minimum. This would allow you to present a unified brand to the client as they would only be receiving invoices from you. And from your end, you would be negating the risk of a double-loss if the client ends up not paying.
Plus, if you are in a position to pay in advance for the integration services then you may be able to negotiate a discount and further increase your profit margin. If not, then at the very least you should garner some goodwill with your integrator. This may come in handy later down the line!
The expert was Adam Home of debt recovery firm Safe Collections.
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