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Generally for online only clients I provide a maximum of 2 hours work before requiring at least the initial payment. However for some clients that is the total amount of work (or more) in some of those cases I have had clients that stop communicating as soon as the bill is received. I am located in Canada some of my clients are located in the US (but they could be pretty much anywhere).

I don't have a deal with any debt collectors and I suspect that may be not very effective for recovering small amounts (less than $75). I generally do still have access to the hosting/FTP/webadmin for the client. So my question is kinda three questions:

  • Should I hire a debt collector?
  • Should I put up a notice blocking their site until they pay? (ie I have the ability but are there any legal problems with doing so? (given that I have a papertrail showing an unpaid bill)
  • Is there something else I should do or should I just write it off?
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4  
Which country? US, EU and UK laws & approach differ. After some difficulties with US clients, I don't work for US businesses without prepayment. In the UK, small businesses have protection from companies that don't pay, and can even charge interest above base rate. –  JezC Aug 28 at 14:14
    
@JezC Oh bother forgot to include that important information; thought I had. Included now, thanks for the reminder :) –  Nick Wilde Aug 28 at 15:00
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Simple. You host the entire software on a server which you and only you have access to. If they don't pay, you shut the website down. –  Subby Aug 29 at 8:21
    
@Subby I often do that but in some instances that is not possible to do (for example editing a Blogger page) –  Nick Wilde Aug 29 at 14:33

7 Answers 7

up vote 2 down vote accepted

Regarding your question and not your proposed answer, I would communicate relentlessly but very politely. After all, your desired end-state is a satisfied paying customer who repeats business and refers others. If the customer is happy with the service but has been (literally) embarrassed for funds, consider simply forgiving the debt. It sounds small, and while you are a hungry startup, the fact that you are a startup means you are hungrier for a loyal customer base than for mere cash. Customers bring cash and not the other way around.

Ask if there is any problem with the service. Ask if the customer would like to change anything about the agreement. Ask if the customer needs some additional time to pay. Finally, offer to forgive the debt if it means keeping a paying customer who needs to not pay one time. It just happens to be the first time, and from then on, you would have no trouble asking for payment up front.

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No that definitely is under my options listed - that'd be the 'is there something else I should do'. –  Nick Wilde Aug 28 at 19:17
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Agree wholeheartedly. By "writing it off" in the right fashion, you might be able to get more out of it than if the customer had simply paid up. Good luck with it. –  Haakon Dahl Aug 28 at 19:22
    
Well that was nice... went to write a 3rd reminder and new mail... Paypal you've received $$ from ---. This is basically what I was planning anyways but it is nice to have more thoughts on it. –  Nick Wilde Aug 30 at 22:48

IANAL and IANADC (I am not a debt collector). IME, if you pursue a US business for unpaid debts, they will take into account the costs of pursuing the debt. You'll get a fraction of the amount owing, and that's if they have reasonable belief that you will turn up in a US court, as a furriner, to pursue a debt with a solid paper trail. IME, US Courts don't like furriners, so you need a very solid paper trail demonstrating that the client understood that a payment was involved, clearly accepting that the work had been completed satisfactorily, that there was no dispute over the quality of the work, and then refusing to pay. IOW, unless there are serious sums, don't bother with small debt collection (under six figure sums) in the USA. For me, that means I don't work for US businesses from outside the US, any more, unless they prepay.

Given the proximity of the US and Canada, you might be perceived as having a higher likelihood of pursuing a claim. There may also be mutual agreements between the US and Canada, to protect trade. I don't know. Can't usefully comment on that.

For other jurisdictions, also no idea. I haven't had this problem with EU clients (Germans and French both pay on time, IME), and UK law is pretty defensive for UK based small businesses and reluctant established businesses in the UK.

My recommendation is that international customers should prepay for work. You can say that Canadians get your great offer. Everyone else pre-pays. Unless you find that the fraction of US defectors is small enough to write off as a cost of doing business. If you only lose a few percent per annum to US defaulters, just up your prices to the US by a few percent.

I'll be interested to see what other approaches people have adopted and recommend!

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For me, legal things are always the last resort. So far I did not have to use any. I usually push reminding messages in a polite manner until they pay.

But this will not work for the clients you don't have history with. With them I either use 1-week upfront or some percentage upfront. If the work is hourly, register at some freelancing service and do hourly work. All of them have hourly protection which means that they will forcibly charge the client.

In your case, I would not hire anyone. A couple of hours is too little money. I would try to push the client via his website. I am not sure if there are legal consequences if you block entire site - maybe there are since you did only part of it. Maybe you can revert your work? That way he will not get your work - a small satisfaction in case he does not pay you.

There are also other things you can probably "disable", but thou they are not illegal, they are not ethical.

In future, have one policy for new clients, and another for old clients.

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1  
My largest bad debt was US client who'd been paying every two weeks for about eight months. And then stopped, leaving me with a five figure hole. 18 months later they came back and asked me to do more work, as no one else had matched the performance. But they simply weren't prepared to prepay. Some people are just... hard. My second largest bad debt, always disputed the suppliers' work, and his dad was a retired lawyer with time on his hands... very difficult to discover that behaviour before working for them. OTOH, I've had clients who were happy to prepay. The world is a varied place. :) –  JezC Aug 29 at 15:04
    
Really I'm not seriously inconvenienced - it is at what I would consider an acceptable loss rate right now which is probably less than what I would lose for requiring prepayment for all jobs. Basically I'm just considering options to see if I can reduce losses since well that's always good –  Nick Wilde Aug 30 at 22:43

This is an important point for many people here and it highlights the need for a carefully worded contract at the onset. If you have the ability to withdraw the service if the customer does not pay (i.e. shutting the site down) then that is a great tool to include in your original contract. This way you will make it clear that they are required to pay and will not be able to get the service for free by avoiding to pay you. It's always best to disclose as much info as possible in the beginning and to think of all scenarios even though you hope they never occur.

As for your current problem, going though a court system will take 2-3 years and will involve significant costs, and an in person appearance. You may not have a legal standing to sue the person in the US and it will actually depend on the state that customer is in. You may be able to sue them in Canada, but there is no way for you to force them to pay you unless they step foot in Canada.

You could try a debt collector to have them call the individual at their home, but you need to be careful of harassment otherwise this customer could sue you.

You could amend the current Terms of Service with all customers and add in something that says you have the right to block service and post a notice on the websites saying this site is suspended until the owner pays for web design fees or something along those lines. It could offend people and be a turn off though.

The easiest thing here is to write off all of the work and lost revenue as a bad debt for tax purposes.

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Don't know about Canada, but in the US you can't write off work and lost revenue unless you previously included them in income (i.e. you're an accrual basis taxpayer, unlikely for a web developer). –  Pete Becker Aug 28 at 19:05
    
Correct, I was assuming a corporation where you need to record the potential revenue as revenue and you record bad debts for customers that do not pay. –  George Aug 28 at 20:28

In my opinion, generally, you won't be able to recover any funds. Especially, if the client didn't get any gain out of this relationship. That's your cost of doing business unfortunately.

In order be less vulnerable, I believe you have to adjust your business model and expectations a little bit.

As a service provider, I believe you should be prepared to make certain efforts towards customer's satisfaction without expecting a payment. Doing so you will be able to attract more clients and eventually make more money.

At a certain point you have to start charging your client for your services. I believe it should be at the point when the client is already hooked either by your technology (if you have any) or simply by the amount of time he invested in communication with you.

You still have to expect that you might not get paid for your services. Thus you have to make sure the client doesn't get much from your efforts until he pays. If you're a designer, don't send quality images or vector graphics until paid or unless you have long history with the client. If you're developer, don't upload/checkin the final solution before the money. This would be a motivation for the client to pay.

The section below is best understood when you look at it from the client's standpoint.

You also have to be prepared that the client walks away. At that point he doesn't need your services anymore. If you've ensured what I mentioned in the previous paragraph, then this means he's walking away with nothing. It probably means that he didn't like your service. That's what you would do when let's say you're given a bill that's twice higher than a sales guy promised. Or when you realize that you're just wasting your time with someone.

The most practical step at this point would be to think how to improve your service. Problems may reside in its quality, pricing model, communication, delivery time, etc.

I hope it was somewhat helpful and not too offensive.

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Very not applicable for me - all except one of my clients that have ever been 'tardy' in their payments had expressed satisfaction. If it is significant work output I always do milestones combined with payments but for tiny things that doesn't really work. However despite not being personally applicable I think this is a great answer. –  Nick Wilde Aug 30 at 22:45

This is a well known video by a webdesigner (aka: 'fuck you, pay me'). He knows what he is talking about. Despite sounding aggressive on the title, he gives very good, very practical, non-aggressive advice in the video

One thing I remember and you might use: until payment, do not transfer IP. Preferably (this is me now, and I don't know anything. He does though =P) don't even transfer control of the server/app/whatever.

Another thing is to receive payments spaced for the duration of the project (pref. just after deliverables)

But seriously, go watch the whole thing

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That is what I do when applicable but editing some things has to be done on a live server (ie SquareSpace, Blogspot customizing css/javascript etc.) –  Nick Wilde Aug 29 at 14:46
    
dump the thing on some other server, do the changes, show them, and demand payment =P –  josinalvo Aug 30 at 15:29
    
that would be against the BLogspot/SS license (not to mention way more work than would be worth it even if I could hack their site to get their backend) –  Nick Wilde Aug 30 at 16:05

The main issue is that you provide deliverables before payment. To resolve it, simply change your strategy so that if a deliverable can not be protected (e.g. by hosting it yourself if it 's a backend script), you should get paid first.

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