EAL’s latest columnist has the answer for every designer’s worst nightmare: What to do when you haven’t been paid. David Adler knows. He has been practicing law for 20 years with a focus on helping designers, creative professionals and organizations solve their legal problems.
His practice focuses on the interrelated areas of trademark, copyright, marketing and advertising, social media, digital business, and regulatory compliance. He has significant in-house counsel experience managing the legal affairs of industry-leading software providers in the public relations, marketing, and financial services industries, negotiating and drafting enterprise-level Software as a Service (SaaS) agreements and contracts with a heavy emphasis on proprietary rights.
We'll let him take it from here ...
Ever had a client refuse to pay, not give you credit for your work, or use your design without hiring you? As outrageous and unfair as these situations sound, they happen often—usually due to poor planning, client management or incomplete contracts.
I am often asked by my interior design clients, “What can I do when a client doesn’t pay?” The short answer is that it depends. This is as much a business-management question as a legal one.
Consider this scenario: You are in the middle of a large project that is estimated to last several months. Maybe this project has gone on for too long due to changes, delays in materials and tradespeople, or lack of communication between the designer and the client. You are growing concerned, because although the client may have paid a retainer, it has long since been spent. The client is now failing to pay invoices, reimburse expenses or even return phone calls. The amount now due is significant, and you face a Hobson’s choice of unfavorable outcomes (i.e., taking what is available versus taking nothing at all). You may feel you can’t walk away from the project for a number of reasons: You’ll lose the money. You’ll disappoint or even alienate a friend, colleague or referral source. You’ll lose out on a large, “moonshot” project that will cement your professional reputation and lead to future projects.
That’s why it’s important to know the choices you have and the steps you can take. It goes without saying that you should not enter into a services relationship without a proper written contract. When a billing dispute inevitably arises, the first point of reference will be the contract. Here are a few extra suggestions on ways to address a non-paying client:
1. Keep good records. Like the contract, this will be the cornerstone of your efforts to collect from your client and “Exhibit A” in your “case,” should a late invoice escalate into a lawsuit to collect for breach of contract.
2. Call. It’s amazing how often a phone call will lead to a reasonable discussion. This, of course, assumes the parties are speaking to each other. Follow up with a letter (via email) memorializing the details of the conversation. If the client is unwilling to have a respectful, professional discussion about billing issues, there are larger problems with this relationship.
3. Offer options. For example, you might want to offer to take 10 percent off the client’s bill if you can take a credit card over the phone today. Another alternative is to offer a payment plan. If you do offer a payment plan, be precise: for example, three equal installment payments over a period of three months. The shorter the better for cash flow purposes. Put the payment due dates in your or your assistant’s calendar and make sure to follow up if no payment is received.
Sometimes my clients make the mistake of agreeing to take on a new task or even project when the client asks for “just one more small thing” during this negotiation. Resist this temptation! It is never OK for a client to condition payment for past services or merchandise upon any additional task or request.
4. Balance the costs. One of the hardest business decisions is weighing the many factors that impact a decision to pursue a given course of action. You have to look at the basic value proposition. Is the benefit of spending time, money and resources trying to collect an amount worth the cost in time, money and distraction from the business? There are several costs to consider. For example, litigation involves fixed and variable costs over a prolonged period of time. There are reputational, or “soft” costs, such as fear of disappointing or alienating a friend, colleague or referral source, or, more damaging, a negative review or reference from the now-adversarial client.
5. Exhaust other options. Make sure that you have tried all reasonable methods of contacting the client and collecting the bill. For example, if a coworker is available, play “good cop/bad cop.” Make sure to send letters. Send them by certified mail with return receipt or by courier with signature requirement.
6. Consult a lawyer. The scope and enforceability of your rights vary. The types of claims you may have also vary. Add to this that there may be statutory or contractual limitations on when and how you can enforce your rights. It is important to consult a knowledgeable attorney to fully understand your rights and how you can protect yourself.
Unfortunately, many designers think that it will be expensive to consult with a lawyer. But many lawyers offer a free, no-obligation consultation to determine whether your situation merits further investigation or action. As a designer, you should be prepared to ask what your options are, such as litigation or walking away. What are the potential or approximate costs of pursuing those options? What are the time frames in which different goals can be achieved? Be prepared to engage a lawyer if you expect the consultation to lead to preparing potential strategies and next steps.
7. Know when to cut your losses. Have a date or amount in mind that marks the point at which you know you’re just spending good money after bad, and not likely to see satisfactory results. While it may be painful, take what you’ve learned and put it into practice to avoid making the same mistake again.
Not all business owners feel comfortable pursuing a client for a late or unpaid bill. Obviously, the vigor of your pursuit will depend on the many factors discussed above. Remember that you are paid on the value of your skills, experience and knowledge and its application to your client’s needs. Do not be embarrassed to assert your right to be paid what you’re owed. This is just good business.