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Need advice on managing difficult clients that won't pay on time


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Hi all, I'm not sure if this is the forum to post
this in. Apologies in advance.

So I have a client that is neglecting to pay services rendered. They owe a good sum of money as
myself and a friend did a full network and server deployment and have provided hours of support.

The client keeps asking us to support them and calls us for small issues but it's been over 4 months and they keep saying delaying payment.

I just stopped supporting them , while my partner continues to support small issues.

Here is my question. If you were in this position and had control of the VPN, Server etc, what would you do to even the playing field? I don't want to get lawyers involved.

Thanks for the advice.

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A company I worked for had the same issue with a non-paying costumer.

Send him dunning letters with a fixed date to pay. If he doesn't respond

after the third dunning, you should consult a lawyer.

It may be the only way to see money, but sometimes even a warning about taking

legal actions can change their mind 'bout paying ;-)

PS: Stop all support!

Edited by Broti
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1. Ultimatum. Don't do anything anymore until he pays up. Write up the amount he's due for services rendered and include in this an item for time wasted getting him to pay his bills. Charge him your hourly support wage. Notify him that if he doesn't pay by date X he will be in breach of your contract (you... DO have a contract...?). Inform him in this letter that his unwillingness to pay his bill is threatening your business. Get this to him in writing via certified mail - your first step in evidence gathering.

2. Threaten. Inform him that he's now in breach of contract and you'll be forced to sic a lawyer onto him, the bill of which will be added to the amount payable, along with a certain amount of interest for the outstanding amount. Do the math for him and make sure the interest rate you use is fair (basically, what your bank would charge you for a loan). Inform him that his unwillingness to pay is causing grievous harm to your business and as such you intend to claim punitive damages on top of the compensatory damages for his deliberate and intentional actions against your company. Again, certified letter.

3. Get the courts involved. Find a lawyer to write some shit up and file it so you also get a court case number. Demand from him X amount where X is now the money he owes, the lawyer fees you've incurred, your agreed hourly wage times the amount of time you've now wasted trying to get him to pay his bills, administrative fees which are the cost of sending the certified letters and finally add a percentage (33-50% I'd say) of this total amount as punitive damages (though this might not stand up in court since your contract probably doesn't mention what happens when he doesn't pay or you wouldn't be in limbo all that much). Offer to settle for Y where the only difference between X and Y is that with Y the percentage of punitive damages is roughly halved. Let your lawyer advise on this.

4. Sue. Fuck him. You're better off without scum like this.

First and foremost, both you and your friend must stop rendering any and all services after the date stipulated in item 1.

Oh, and finally but equally importantly: remain civil. You're just going by the book. He'll probably try some sob story about how you're ruining his company and/or how he's going to punish you by destroying your company (your response: We've agreed upon a contract so maybe you should've thought about your ability to pay when you entered into this agreement. A.k.a. YOUR PROBLEM. And in the latter case, he already IS destroying your company and you're trying to prevent that from happening.) Assume in any communication that you're going to have with this person that it's going to be recorded, that some legal slime or idiot jury is going to see only that specific little slip of the tongue where you called him a pederast or whatever and you'll be painted as the bad guy. So, follow protocol. Remain fair, and civil. Remain composed. You have a contract, he owes money on the contract, he either pays or suffers the consequences, whichever he prefers. Either way, it's HIS choice.

If you're not up for any of this, inform him that you intend to assume the contract broken, you will sever any and all relations with him and you will send this debt on to a debt collection agency to handle the remainder of this process. You'll probably only end up with a reduced percentage of the amount payable (50-75% at best I'd suspect, and that's for things you can prove he owes) but you can then ignore any future communication from this individual and work on making your business flourish using actually paying customers. In future contracts, include some text that basically says "If you don't pay me within X days of the invoice, this (fill in the blank) will happen to you". Consult a lawyer when you write this up. When you negotiate a contract with a prospective client and they have issue with this text, clarify that this only kicks in after X days. Offer to increase X if the client is being prissy about it. DO NOT take out the clause(s).

Edited by Cooper
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Thanks for the responses, they've been a tremendous help guys.

Some history:

The last time I was on site, they were already late on payment. They didn't mention payment and neither did we.

The time previous to that, I actually printed out two invoices in and wrote in the amount due. Showed it to the project manager at which he responded "cool, i'll have this processed tomorrow"

Now, 2 weeks ago I received a check for 112.00. I called to inquire as there are 2 invoces pending which total almost around 3k.

When I spoke to him on the telephone he gave a story about trying to pay per call. They in essence paid for a couple of trouble calls, but neglected the other invoices. I was told that they would be processed that week. As I was told 2 weeks prior.

A couple of days ago they went down 100% (thanks comcast) and panicked. My partner calls me asking if I'll go onsite. I said I wouldn't even talk to them as I haven't recieved payment. He went ahead and talked to them mentioning that he would go on site if they cut a check. They said they would process payment this week. Same story.

I wish we had these guys on contract. They thought it would be more cost effective for them not to do so. As it turns out they would have already satisfied over half of their bill including what they've already paid for previous services.

I know we could destroy them in court but it's I dont know if I can afford attorney fees.

Another question, if my business partner continues to support them thus fking me in the process, can I legally take action on him as well?

These people were supposed to be friends. Funny how things get when $$ is involved.

Thanks again for the advice.

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If you're intrested in continuing to do business with them, the next time they 'panic', have the invoices ready, show up on site and tell them you'll fix the problem, but this bill needs to be settled before you can start. If your willing to be really nice (blah), you could say you'll be willing to fix their problem if they pay x% of thier current balance, only if they really are friends. If they don't pay, tell them you'll be right back and then just go back home. Either they will pay or not.

You could also look into a collections agency. I doubt going thorugh the counts will get you very far.

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I don't see how your friend fucked you over, so maybe you could elaborate on that a bit.

Your #1 problem with everything right now is that you don't have a contract. So how do you know he owes you 3K? You've rendered services but you haven't delivered a product (as in physical item) so you can't take them to court with the invoice you got for purchasing that item and forcing them to prove it's theirs. You need to find something other than you and your mate's word that proves you performed whatever services you've rendered. Once you do that the discussion should move towards the reasonable fee for rendering the services. Since you did have some of the work paid you can use that as a basis to get to the amount for which you can take him to court.

If you want to take someone to court without incurring attorney fees, inform yourself about small claims court. These courts are specifically designed to allow people to defend themselves. There's a limit to the amount you can claim this way, but from the sound of it you're well on the safe side. I would however still recommend you talk to a lawyer beforehand about this to know what you're up against, what you can expect and to maybe help you understand the process. It would be money well spent and you can build a relationship with this lawyer to help you draft up a contract for future work, as I doubt you'd want to repeat this experience.

Before you take the guy to court, get as much documentation as you can. Any and all invoices in a nice little folder. Any receipts you may have. Any work orders they signed off on. Pretty much anything with their signature on it. Go into a meeting with them and get them to sign off on the fact that you did actually do the work you'd agreed upon. Be friendly. Be civil. Be specific. If need be, lie about why you need the signature. "I need it because the IRS is on my ass, saying that since I didn't work at all that time, at least on paper, I don't get a tax credit" or something like that. Keep in mind that any part of the work you can get him to sign off on is now services he's agreed that you have rendered, which will matter in court where the discussion will then focus on your reasonable hourly wage, in the absence of a contract, rather than it being your word against his wether or not any work was performed at all. Once he's signed off on the work, leave. You can ask him when he's going to pay for this stuff and he'll probably say that he'd do it in a week or two again. Just say you're looking forward to it and walk away. You've gotten what you wanted.

Wait the two weeks he said he would need to process the payment, then call up and ask if he's planning on paying you. You'll get the runaround and you know it. Go to stage 1: Ultimatum. Pay up by date X or I'm getting a lawyer involved and will charge you for the privilege. Send him a letter via certified mail summarizing the amount payable. Include with this letter copies of all unpaid invoices, all work orders he's signed off on and include an amount for 'administrative fees' which are the cost of the certified letter as well as a post for 'time lost' which is the time you've spent trying to get him to pay the bill multiplied by your already agreed upon hourly wage. Be fair in this and also include documentation of when you've spent how much time trying to get him to pay up. It doesn't all have to be provable (though if you have phone records, it adds weight to your claim so you should include them with the certified letter).

Even if you don't take him to court and instead hand the job over to a debt collection agency, this documentation will help immensely in getting you a larger percentage of the amount due (since it's legally provable that the total amount claimed is due).

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Thanks again for the great information. I do have every service performed for the business itemized on our invoices. I have all the receipts for equipment I purchased for the project. One of those devices is a backup drive which is used to do remote backups. I was thinking about repossesing it.

The bit about my partner, I brought him in to help with the initial network implementation and take care of front line support. Now, being that they can use him to put out small fires and pay him separatley they don't feel pressured to pay the account they owe. That's what I meant about getting the shaft. He agreed not to go onsite unless they have a check cut out for us, but he still supports them over the phone. Which I strongly advised him not to do. Tricky.

However, I am tremendously greatful for your input gentlemen. I will move on your advice. It's just what I needed.

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Thanks again for the great information. I do have every service performed for the business itemized on our invoices. I have all the receipts for equipment I purchased for the project. One of those devices is a backup drive which is used to do remote backups. I was thinking about repossesing it.

The point is that you need their signature to prove that you did it. Anybody can itemize a worklist, but without a signature from the other guy on it it's nothing more than a collection of paper and ink.

You can demand the drive and any other unpaid products which you supplied back from him. Read up on 'restocking fee'. Include the returning of any product minus a reasonable restocking fee as an option for him to pay you for your work. It shows good faith as it allows him a way out (even though it really isn't since I doubt he'd want to stop having backup drives).

With things like this, you have to be reasonable, polite, specific and strict. You don't want to tank his business, but you don't want to sit back while he's tanking yours either. If the courts do come into play, you have to show (=prove) you did your best to come to an amicable solution that works for the both of you. If the other guy can prove you've sent some dock workers with heavy batons to his home late one evening, the court might see your claim in a different light. :smile:

You can choose to give someone more time, but you should get this down on paper. Offer an arrangement where he pays you a certain amount each week/month over the course of a few months, but he's going to have to pay interest and he now needs to sign a contract whereby he agrees to do so. This too is something you should write up with the aid of a lawyer. There should be standard contracts for this sort of thing so it shouldn't be too pricy and you can use it for your future clients so consider it an investment in your business rather than a loss to it.

The bit about my partner, I brought him in to help with the initial network implementation and take care of front line support. Now, being that they can use him to put out small fires and pay him separatley they don't feel pressured to pay the account they owe. That's what I meant about getting the shaft. He agreed not to go onsite unless they have a check cut out for us, but he still supports them over the phone. Which I strongly advised him not to do. Tricky.

However, I am tremendously greatful for your input gentlemen. I will move on your advice. It's just what I needed.

The thing I notice here is that he demanded they cut a check for the both of you, which to me implies he helped get you money, even if it wasn't the full amount you're due. He didn't give them any discounts or anything so he's being responsible, which, again, helps your case in court if it ever goes there. Plus, did any of this work go through your company, or is the client now talking directly with your friend and receiving services without your intervention? If so, this too should be mentioned to the lawyer. It's probably not actionable due to the absence of a contract which would/should forbid him doing that, but it paints a lesser picture of the client which could help you in court.

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The point is that you need their signature to prove that you did it. Anybody can itemize a worklist, but without a signature from the other guy on it it's nothing more than a collection of paper and ink.

You can demand the drive and any other unpaid products which you supplied back from him. Read up on 'restocking fee'. Include the returning of any product minus a reasonable restocking fee as an option for him to pay you for your work. It shows good faith as it allows him a way out (even though it really isn't since I doubt he'd want to stop having backup drives).

With things like this, you have to be reasonable, polite, specific and strict. You don't want to tank his business, but you don't want to sit back while he's tanking yours either. If the courts do come into play, you have to show (=prove) you did your best to come to an amicable solution that works for the both of you. If the other guy can prove you've sent some dock workers with heavy batons to his home late one evening, the court might see your claim in a different light. :smile:

You can choose to give someone more time, but you should get this down on paper. Offer an arrangement where he pays you a certain amount each week/month over the course of a few months, but he's going to have to pay interest and he now needs to sign a contract whereby he agrees to do so. This too is something you should write up with the aid of a lawyer. There should be standard contracts for this sort of thing so it shouldn't be too pricy and you can use it for your future clients so consider it an investment in your business rather than a loss to it.

The thing I notice here is that he demanded they cut a check for the both of you, which to me implies he helped get you money, even if it wasn't the full amount you're due. He didn't give them any discounts or anything so he's being responsible, which, again, helps your case in court if it ever goes there. Plus, did any of this work go through your company, or is the client now talking directly with your friend and receiving services without your intervention? If so, this too should be mentioned to the lawyer. It's probably not actionable due to the absence of a contract which would/should forbid him doing that, but it paints a lesser picture of the client which could help you in court.

Yeps, you should always let them sign field reports and delivery papers of goods. Best is also that they need to write: " For delivery of goods on XX/XX/XX and sign ) This way you have legal paperwork for court.

Now i don't know if this is a 100% correct. Worst case: if they didn't sign a paper and didn't pay for hardware that is running there. I think there's a legal way to reclaim the hardware ( country depended ) because this is still yours.

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With the invoice from your own purchase you can prove the item is yours, so the client must then prove they paid for it otherwise it's effectively theft.

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Amazing! I didn't even consider "effective theft" and restocking fees. Yes, I do have all receipts for equipment purchased , one particular item (video card) was damaged and I lost $$ money on it as I was traveling and could not return it on time for a refund.

Update:

I spoke to my who handles the front line and he agreed to stop all support and stand with me in court if it comes down to it. He was just paid for three past invoices he sent to them yesterday. Still, we have not received the other two larger invoices. I know the client doesn't want to lose our support which is why they're nickel and diming us with paying for support calls such as setting VPN accounts etc.

One question, they have made us sign W9s before releasing payment. Will that impact any of this?

I wish I knew more about business law, thanks so much for all of your help. One thing is for sure, I will NEVER enter a business agreement w/out legal representation or paperwork completed first. This is outright ridiculous.

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https://turbotax.intuit.com/tax-tools/tax-tips/Jobs-and-Career/What-is-the-Purpose-of-an-IRS-W-9-Form-/INF19259.html

As far as i understand it. Its just a form so they can do the tax work correctly. In europe its also required to give your unique vat tax number to costumers. I don't think it can be a problem. Only if they would report the invoices as paid will they didn't pay it. But then there doing tax fraud so....

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Here in .nl, when a business buys something (labor, product, whatever) they get an invoice that shows the amount paid for it, which includes taxes. The business can then do something useful with it and sell goods and or services on, for which they are required to claim taxes from the purchaser which they must give to the government at some time later in the year, via their own taxation structure. In this scenario, the thing sold by the business has effectively been taxed twice - once when the business acquired it and again when they sold it on. This is unfair. So the way they deal with it is that the business only has to pay taxes for the value they added to the product they're selling on (hence Value Added Tax).

Trying to compute how much you added is a major pain in the butt, so they do things differently which we'll explain by example. Let's assume the government demands 20% VAT. The business bought something with a pre-tax value of 10, which it sells on, again pre-tax, for 100. When the business buys the item initially, it pays 12 to the seller - 10 for the item, 2 in tax. When it sells that same item, it charges 120 - 100 for the item, 20 in tax. When the tax man comes, the business gives him 20, but takes back the 2 it spent when it bought the item. The tax man can go to whomever sold the original item to get that 2. The tax man gets his 20, the business made its 90, the seller of the original made its 10. All fair.

The scenario above only works with purchases between local (to that government) entities that are under control of the same government/tax man. When you purchase something from somewhere else, the tax man can't go there to claim the 2 the business spent purchasing the item, so chances are the business is going to have to cough that up aswell - let's not go there right now because the rules get damn complicated DAMN quick when you want to do this and are also very country-dependent (both yours and the sellers).

So, the business needs to be under control by the tax man and the supplier to. That way the tax man gets all the money he should, and he's happy. But when the business says "Gimme back my 2, go to person X for the 2 you should be getting" the tax man needs to know who X is. This is what that W9 form allows. It identifies you as the supplier of something, so any taxes you made the client pay to you are taxes the client doesn't have to pay the tax man.

Edited by Cooper
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  • 2 weeks later...

As someone who has had their own business since 2010, I learned the hard way; always get something in writing. Period. That means a signed (real signatures!) contract with details on all work to be done, rates, non-verbal agreements, etc, before starting a job and what you consider a show stopper for no further work done, collecting payment, etc. Once you have a contract signed, it's pretty much a binding agreement, and if they don't pay, you then have more wiggle room to go after them legally and 99% of the time an open and shut case in your favor(except when clients are international and local laws won't apply, good luck going after them).

Having a contract also helps protect you if they try to come after you, but also, if they don't sign, you don't waste time doing the work and can find out up front what kind of customer you'll end up with, ie: they won't sign, they probably wouldn't pay you, so no loss.

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Well gentlemen, I thank you all for the input. Today's update is as follows.

Client calls as they need Voip setup and comcast screwed something up, lulz.

They want to settle with us to keep our support. However, they are only wanting to pay $1800.00 out of almost 3k. I know it's not a lot of $$ but to us poor guys that consult for a living it's a LOT.

I talked it over with my partner and he is wanting full payment, no negotiation as they dicked around too long. I have to concur as I'm not one for free work. However, we do want to maintain their business. Sort of..

How do you guys suggest we proceed?

I know I won't be going back without a document for them to fill out, even if it's for the work we will be performing on site that particular day. I'll have what we will be doing and our hrly rate, they will sign before and after?

Thanks in advance for all your suggestions. It's saved me a TON of grief.

Cheers!

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Make it clear that any support is contingent on full payment of the outstanding bill.

Also make it clear that going forward a full contract is to be signed, and payment within X amount of time is to occur unless they want to be in breach of contract.

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Okay, I'll be serious now. Actually I was mostly serious the last post too, but that's for another time. For our client like this, they are pay as you go. They give us a check when we finish, or we won't be back, period. As far as I know, one of our past clients hasn't had working email for almost a year now. Their server freaked out, but because they were really past due, my boss said, nope. We've also repossessed servers from non-paying clients. Oddly enough, it seems to be the Dr's offices that are the worst about paying on time.

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Thank you gentlemen! I will proceed as suggested.

Oh and as barry mentioned it's funny that Dr. Offices and Hospitals have the absolute worse security I've ever seen. Yes and they're ultra stingy.

Also, don't think that your previous suggestion wasn't entertained. We have been on the verge of putting on our black hats for this one but..that's another story.

Edited by cat6
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To CAT6, having been in consulting for a little while, it is critical (as others have pointed out) to have a Statement of Work for every engagement that delineates exactly what services your are going to provide, the hours you will dedicate and what the deliverables are. Having your client sign that and following to gives you a bit more ammo when circumstances like this arise.

Good luck

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