how to always get paid as a contractor/consultant
I posted the beginnings of this on LinkedIn in response to someone who got screwed over on some contract work. Maybe this can help you avoid the same problem in the future...
How to ALWAYS Get Paid
I ran a consultancy for 7 years. Having worked as a contractor prior to that, I knew we’d need to protect ourselves. So, we did three things to avoid non-paying customers, but…
All this first requires one caveat: YOU HAVE TO DELIVER.
This only worked for us because we did good work and took great care to make our billings as transparent and in the face of the client as possible. It also didn’t hurt that in those 7 years over 80% of our work came in on time AND under budget.
So, if your work is good, and you’re still having trouble getting paid, try these three things…
Retainers
1. We'd take a retainer that would be deducted from their final bill in order to cover 1 month plus the net-30 payment period of working with the client. If they failed to pay us at any point, we'd stop work and at least have some of what they owed us in hand.
This one is vital: Just because the client doesn’t pay doesn’t mean you can skip paying the salaries of your team.
“But clients don’t want to pay a retainer.” If they can’t afford the retainer they definitely can’t afford the contract. Move on. Unless you’re dealing with someone like a Fortune 500 company you absolutely need this from them.
Contractual Protection: Late Fees & Lawyer’s Fees
2. We placed late fees in the contract of 1% of the bill per day, compounding, beginning at 60 days late, along with friendly (for us) arbitration in our home state with legal fees reimbursed in the event we won.
“My clients won’t sign that.” Why? Do they plan on waiting more than 90 days (NET-30+60 days late) to pay you? If so… no thanks. Not a client we want. Again, Disney isn’t going to sign your paper, you’ll be signing their contract, but Mickey will pay up. If the client is not on that level, however, they can sign mine or kick rocks.
Unimpeachable Reporting of Work and Budgets
3. Automated reports including budget updates, hours billed linked to corresponding work output (github commits, drafts delivered, etc), and emailed to your client stakeholders daily ++ weekly and monthly summaries. All of this linked to said permanent record of our work for them on a third party site where we could not possibly alter any time logs or data — which is useful in arbitration as evidence.
With this a client cannot say, “I didn’t realize what the cost was,” or call into question your hourly billings (when they’re all live timers that are substantiated by git commits and uploaded documents from those same days by those same people within the time window worked.)
In Practice
We only ever had one client try to push it, threatening to take it to arbitration rather than pay up. I pointed to the budget updates they had approved, the additional work they requested knowing the status of the budget, etc and warned them... We would not only be working in arbitration to recoup the amount owed but:
the 1% PER DAY fees that were already $20,000+ and growing daily (saving the first mention of late fees ever made until this point for ultimate shock value)
AND our lawyers fees as outlined in our contract
OR they could just pay us what they owed us and move on.
They paid up. Shocker.
The goal is to never have to use these instruments. In 7 years we never charged a single late fee (but could have — we even took a no-interest payment plan from one client when they made it clear they would pay their bill, but needed time due to unforseen circumstances), never held back finished work from anyone, never went to arbitration, etc — but all of that acts as a deterrent from some asshole trying to take advantage of a lesser resourced group just because they can.
It’s simple. As Mal said, “I do the job, and then I get paid.”
