How do I collect money from a non paying client?

April 15, 2007 3:51 AM

I have a client who commissioned some web work from me and then dropped the bombshell when I had completed the project that they didn’t have the funds in place to pay me fully until they’ve sold more advertising on it. What can I do?

First can I say this is entirely my fault. I didn’t get them to sign a contract and I didn’t outline payment details it’s all been a rough learning curve for me I have never had problems before but I’ve learnt that I’m too trusting and consequently I’ve been taken advantage of. I’m not sure what my next step should be or where I stand legally ( I’m in the UK ) but the financial impact on me is quite significant

What happened was some 6 months back I was approached to develop an online lifestyle website by 2 women who had recently setup a new limited company, the running of the site was to be done by one and the selling of advertising space within the site by the other (which would be there income stream). Both women have full time jobs so it was a case of them working on this new project whenever they could squeeze the time in between their main job commitments.

I completed the work at the start of the year, with a lot of features above what i had quoted on, with the premise that if I added the additional features I would be paid on completion. However this transpired to be incorrect and I was only paid half of the original amount and was told that they hadn’t sold enough advertising to pay me the remainder. They did say that there were trying to sell more space and over the past 3 months I’ve received a few drips, however at the current rate it would take about 2 years for them to pay me off.

I’ve recently spoke to them and pushed for a date when I can expect the remaining funds however they can’t commit, they also said they have operating costs they need to take out before paying me and that if the company went bust that I wouldn’t get a penny. I don’t want to get nasty but it’s having such a financial impact on me and the responses I’m getting from the 2 women i feel that they aren’t taking this seriously. So I’m wondering is it legal to commission work without funds? If they fold there company would I not be able to pursue them for the money? Legally / business wise what would be my best course of action?

Any suggestions as to what approach I should take would be more than appreciated.

posted by toocan to computers & internet (32 comments total)

You are probably not going to have a lot of options I'm afraid. The lack of a written contract will allow the clients to claim that it had always been agreed to pay you in instalments - there will be no proof to the contrary.

Equally the fact it is a limited company means that you can only pursue the assets in that company - you can't go after the women themselves. If the company goes bust you will get, with other creditors, a share of what it owns, but nothing more. If it owns nothing you get a share of nothing...

You could get lawyers involved - but I don't think it will achieve anything in the absence of a written contract. Even if you had one, specifying payment terms, if the company has no money it would do you no good.

I guess you'll have to look on this as a learning experience - in future make sure you've got a written contract and, particularly if its a new limited company with no visible assets, get a credit check done on the clients. Sorry can't be of more help (IANAL etc).
posted by prentiz at 4:20 AM on April 15, 2007

If you have any emails with agreed payment details, you can use those as evidence of a contract. Do you have small claims court in the UK?
posted by miss tea at 4:24 AM on April 15, 2007

Yeah, small claims is probably the way to go. Of if you have a solicitor, get them to make an "introductory" call. This will probably put the wind up them.

Is there any way you can take down/disable the work you've done.

I've been in the exact same situation before. It's a really nasty thing for an employer/client to do. I had to just sit it out.

It's pretty much the same thing as buying a vehicle for a business and telling the car company you'll pay them when you sell more advertising. It's bullshit.

1. If you can, take the work down.

2. Get your solicitor to make a phone call saying that the situation could warrant going to court. This shouldn't cost you anything.

3. Don't, under any circumstances, do another tap of work for them.

You sound like you've learned a lesson from this. It's better for it to happen sooner rather than later. What doesn't kill you etc. etc.

Best of luck :)
posted by ReiToei at 5:04 AM on April 15, 2007

Thanks for the responses. I can take down the work but I'm unsure if this is the best solution as it would guarantee that they wouldn’t be able to generate any more money to pay me and there advertisers i guess would pursue them as well making it even less likely that they would pay me. It’s a real tuff situation.

I do have email correspondences with regards to the money and work and i guess i could goto the small claims court but id prefer not to if theres a better way of handling it.
posted by toocan at 5:19 AM on April 15, 2007

please dont just accept this as education - do whatever it takes to get your money but dont do something you shouldnt
from now on keep everything written down.

Send them an invoice with intrests and tell them you want your money now as per your original agreement. If you can, get them to acknowledge that original agreement in writing.
posted by FidelDonson at 5:24 AM on April 15, 2007

Thanks for the responses. I can take down the work but I'm unsure if this is the best solution as it would guarantee that they wouldn’t be able to generate any more money to pay me and there advertisers i guess would pursue them as well making it even less likely that they would pay me.

Again, this is your own choice. If you have sole access to the site, maybe give them a deadline to come up with the money or else.

At the end of the day, their money problems aren't yours.
posted by ReiToei at 5:28 AM on April 15, 2007

um. situations like this really, really piss me off. according to the situation as you describe, you have been taken advantage of. just because a company isn't doing well, doesn't mean it's employees start working for free.

i'm not a lawyer, but as a casual observer of american jurisprudence, i can tell you that if you had an oral agreement that you would be paid upon completion, they have an obligation to pay you if in fact the website is completed.

you can go to court without evidence and state your case. i honestly think that if this principle of the 'oral agreement' exists in the UK, you would win your case.

of course, if it were up to me and i had access to the servers and it was a significant amount of money, i would take the website offline.

on preview: i echo the decision to send them an invoice and take down the website until they respond.
posted by phaedon at 5:30 AM on April 15, 2007

Word of warning, taking the site down may count against you if you do end up in court, even if it's just in terms of the damages you are entitled to.

Get proper legal advice before taking any drastic actions like that (or sending threats).
posted by bruceyeah at 5:32 AM on April 15, 2007

(and good luck, as a web designer who's also had to chase up dodgy clients I completely empathise... it's not 100% your fault)
posted by bruceyeah at 5:33 AM on April 15, 2007

Send them final demand for payment with copies of correspondence pertaining to money owed attached. Inform them that you will take them to the small claims court if they don't pay. The UK small claims court is geared in your favour by the way. I took a big uk law firm to the scc a few years ago and won easily. Your email records are as good as a contract I think.
posted by singingfish at 5:50 AM on April 15, 2007

There might be a silver lining. Since you have no contract they don't own the work that you have completed- even if they did pay you. There are actually a lot of things you could do.

Advertise to entrepreneurial types that you have a lucrative web site for sale see if you have get any takers. Folks are looking for these types of businesses all the time.

Or you could take the concept over yourself- put your address on the site, let potential advertisers to contact you and see what happens.

You might even be able to hijack the current advertisers and tell them to send payment to your location as you have repossed the site due to non-payment.

Not having a contract can work two ways.
posted by bkeene12 at 5:55 AM on April 15, 2007

Don't take the website down. There are a lot of reasons for this. Off the top of my head:

1. It could be construed as a breach of contract,
2. It might fall under "anti-hacking" legislation
3. If you've already turned it over to them, regardless of whether you've been paid, then you'd be damaging their property.

The law can suck some times.

Since getting paid seems to be intrinsically tied to the success or failure of their venture, I'd cross my fingers and hope they sell more ads. With the weight of some legal "winds in your sail" (as someone above recommended) you stand a good chance that of the money that does come in, you'll get a goodly portion of it.

Also, in the future, never, ever do this again. As a general rule, 1/3 up front, 1/3 after design/reqs completion (and sign-off), and 1/3 after completion. Never change this for anyone, for any reason, ever.
posted by Civil_Disobedient at 5:58 AM on April 15, 2007

I've been really, really lucky and never had a client who refused to pay, just a few that were rather reluctant, but it's happened to people I know.

As others have said, get a solicitor to send a letter and make a phone call; that won't be expensive and will help to ensure they take you more seriously.

It's also sometimes helpful to make a polite nuisance of yourself. Phone both of them regularly on any numbers you have for them, and if someone else in their household answers then leave a message saying it's about the payment they're withholding from you (shaming them without you blatantly spreading the news). Email them, fax them, drop in and see them. Firmly pester them but stop short of what would be considered harassment, and document any excuses they give.
posted by malevolent at 6:50 AM on April 15, 2007

Not completely in jest - you could send them a link to this thread. Seeing some of your possible courses of action might encourage them to pony up.
posted by twiki at 6:58 AM on April 15, 2007

I guess I'm a hardass, but I'd take the site down. If they stop making payments on their car, it will be repossessed; if they stop making mortgage payments, their house will be foreclosed. How is a web site any different? (I'm not a lawyer, so I am asking, if anyone knows.)
posted by MegoSteve at 7:35 AM on April 15, 2007

Since you don't have a contract, you can say that you were working for the two ladies. They have money because they have jobs. I am not sure how it works in the UK, but perhaps you can have their wages garnished if you when a settlement in court.
posted by stormygrey at 7:45 AM on April 15, 2007

If you never signed a non-disclosure agreement, I think you would be able to try to sell the website to another party. I think it would be unethical, but not against the law.
posted by spec80 at 8:01 AM on April 15, 2007

Tell them that you want a piece of the company or you will sue for the whole thing. You've basically been put into the position of being an investor, especially with them telling you that they have to pay operating expenses before you get paid.

Make sure that your cut is set up in such a way that they can't use their majority stake to force you out. You might specify that you have 50% of voting control of the company (and require a clear majority). On the other hand, you still want this to be worth their while financially so they don't walk away from the thing, so you might only have 33 or 25% of the value. Just some ideas, IANAL.
posted by Good Brain at 9:04 AM on April 15, 2007

I’m not sure what my next step should be or where I stand legally

Look, you really need to talk to a lawyer. In the U.S., you can usually get an initial free consultation where you describe the situation and the lawyer outlines the possible options for you. That is your only smart next step here; you may not end up hiring the lawyer and taking the deadbeats to court, but you simply *must* figure out where you stand legally before you continue wringing your hands. Look into that right away before taking any other advice.
posted by mediareport at 9:21 AM on April 15, 2007

Show your emails to a lawyer. I'll bet you can use these in a court of law. Also, I'll bet that after the lawyer contacts these two, they'll realize you are serious and pay you. What they are doing to you is not right, but don't be rash and take down the site.
posted by xammerboy at 9:29 AM on April 15, 2007

Let it go and find new work. You're not going to get any more money than the amount that trickles in. If you absolutely want to make sure you're not getting screwed, ask that they create some kind of monthly financial statements and insist on getting a copy so you can make sure that they're giving you a fair amount for their ad revenue.

The lesson learned is not to create anything that runs off ad revenue if you need money quickly.

There's absolutely no point in going after them in any way. If they don't have the money they don't have the money. Notice that they were doing this in their spare time; you should have been doing the same.

One of my former bosses got burned all the time by situations like this and finally learned his lesson.

If you put a lot of work into this website, can you translate it into something else? If it took you a long time, I assume that's because you were coding features which might be useful for new clients. Strip all of the customized content for this site out and you have a new set of features you can sell to prospective clients. This is perhaps the most useful thing you can take out of this.
posted by Deathalicious at 9:38 AM on April 15, 2007 [1 favorite]

Don't take the site down - it could be interpreted as you accepting their breach of contract. You don't need a written agreeement to make a contract, it's a matter of whether the court will believe there's a contract. As others have said, emails will help. Talking to a lawyer is a good idea, though of course lawyers can get expensive. Good luck.
posted by Dasein at 9:54 AM on April 15, 2007

They have the money, or can get it. They both have full-time jobs. They're just fucking with you.

The answer is how much of a jerk do you want to be in return.

Least jerky way that will get you your money:
If you have the power to legally take the site down (it is hosted on your server) then send them a note that says they have 7 days to pay up or the site is going down.

If you want to be more aggressive or you can't legally take down the site (it's hosted by them, you just have access to it) then have a solicitor write pretty much the same letter as above.

Give them two weeks and then go to small claims.

Keep all your emails.

And lesson learned. With new clients, money up front. 1/3 or 1 month of the project, and a portion for every milestone.

They're just trying to push you around. If you send a solicitor's note they'll know you are hard to push and will pay.
posted by Ookseer at 10:07 AM on April 15, 2007

they also said they have operating costs

They need to understand that (a) you also have operating costs and (b) as someone they hired to do web work you are one of their operating costs, one they have absolutely as much obligation to as any other.

There might be a silver lining. Since you have no contract they don't own the work that you have completed- even if they did pay you. There are actually a lot of things you could do.

I think this is a pretty interesting approach. Especially from this perspective:

Tell them that you want a piece of the company or you will sue for the whole thing. You've basically been put into the position of being an investor, especially with them telling you that they have to pay operating expenses before you get paid.

It's fine to do work for promises of being paid later, either in equity or cash (or for free or goodwill or whatever). However, it's never OK for someone to hire you on that basis without making everything clear up front. If they're suddenly changing the terms of your agreement as you understood them, there's nothing at all wrong with you renegotiating the terms on your side either. And if they're going to put you off, equity is a very reasonable compromise. Either that, or finance charges.
posted by weston at 10:27 AM on April 15, 2007

Depending on where you live, verbal contracts may be binding. Small claims is the way to go. I ran into a similar situation years ago. I usually only worked with written contracts, but I was friends with the VP at the company and she asked me to do the work while she headed off for vacation. When she got back, I delivered the work and invoiced. But she quit her job and then the company wouldn't pay. I put together a case in small claims. I used a binder to document the full time line, along with print-outs of emails and any notes I had about meetings and discussions.

Do not remove the site. This is your proof that the work was delivered.

Send them a demand letter, noting "without prejudice". Send it by registered mail. You may want to include a CD/DVD of the site, so that you have additional delivery of the project. Give them 30 days to pay in full, at which time you will pursue legal action. Note all this. Note the rate at which interest on unpaid accounts accrues.

Put without prejudice in all communications. Consider taping telephone discussions, if this is legal where you live -- otherwise, stick to email and letters. If you can afford it, get a lawyer to send the demand letter.

Judges look very favourably upon well organized individuals who have documented all aspects of a case. I was told this by a lawyer. So far, I've won both times I sued clients.

Familiarize yourself with contract law. And always use a contract from now on.

In the future, take 1/3 to 1/2 up front. Invoice at milestones. Do not upload the full project beyond your own servers until say 9/10 is received (I use 90%).
posted by acoutu at 11:00 AM on April 15, 2007

Oh, and FWIW, IANAL.
posted by acoutu at 11:00 AM on April 15, 2007

You need to find a balance between fighting for every penny owed to you and just chalking it up to as an expensive lesson learned.

On the bright side - you've got over 50% of what is owed, so this isn't a total disaster. Plus you aren't in the hole from paying other workers. It sucks, but it could be worse.

However since this situation has put financial pressure on you, I wouldn't suggest paying for a lawyer to write a nasty letter, or wasting more time becoming an "investor" in what sounds like a dead-project. You need to get a new paying project going, pronto. And remember to get your 25-50% deposit up front.

Then, as suggested, work on getting the remaining money from these two women. They have jobs, so they have money. Send them an invoice, emails, leave voicemails. Be polite, but firm. You need to get this invoiced settled. Nothing personal. Just business. Hopefully they'll decide that it's easier to pay you than to continue to jerk you around.

The other point to consider is that perhaps they aren't happy with your work. It sounds like they just got bored of the project, or realized that it was more work than they thought, but could there be quality/client satisfaction issues? As an exercise, look at what you delivered objectively. Is it worth X? Would you pay that? If you're billing hourly/daily – was there some time when you were on the clock but not fully engaged? If so, then you might find it easier to give them a discount, collect some of the money owed and move on.
posted by kamelhoecker at 11:35 AM on April 15, 2007

IANAL, although I do have a rather out of date law degree. You do have a contract with these women - its just not one set out in writing. Under English law, any agreement, backed up by consideration (i.e. you do something and I'll pay you) is a contract - setting it out on paper only helps you prove later what the terms of that contract are. The oral contract is totally enforceable - if you can prove what the terms of that contract are.

Here's where you're in some difficulty - because you don't have a paper contract to prove that, for example, you didn't agree to take payment as and when the site was profitable - which they could very well claim. Now, your emails might be valuable evidence to demonstrate what the original contract was. If you actually made the agreement by email then the emails themselves might be a contract. It depends on what exactly is said in those emails - and really here you would benefit from proper legal advice.

However, the main issue is still whether there's actually any money to get. If your contract was with the limited liability company you cannot get any money except the company's money. The owner's money and income is completely safe - you could not, for example, garnish their wages. If the women in question were very silly, its possible that they messed up and contracted with you themselves, rather than their company- but given they've gone to the effort of setting up a limited company it seems they know what they're doing. Again a lawyer should be able to advise you here.

If your contract is with the company there's no point in sueing them if there's no money in the company and there's not much point in taking any action, like taking down the website, that will stop there being money in the company to pay you later. I guess the threat of taking down the site might be enough to get the owners to pay you - but that is something for which you should speak to a lawyer first.

So, I'm afraid this boils down to, see a lawyer or forget about the late payment.
posted by prentiz at 12:12 PM on April 15, 2007

as it would guarantee that they wouldn’t be able to generate any more money to pay me

What makes you think they will ever pay you? They already said that youre a low priority and that "operational costs" come first. They refuse to get a loan to pay for the work they comissioned. Who knows what these 'operational costs' are, it could be their own pockets. It sounds like they'll never pay you. I say take it down until payment.

Expect them to keep taking advantage of you unless you do something pronto.
posted by damn dirty ape at 1:43 PM on April 15, 2007

This question is about ability to pay, not law. Do they have any money or not? If they don't, it just doesn't matter. And, there is certainly no point taking away their ability to make money! Further, it sounds like they are paying, just more slowly than you would like..

Contracts are great and all, but what really matters is that work got done and people got paid. You did work, you've been paid ~50%, and more money is coming in. All in all, it doesn't really sound all that terrible. You are now in the process of out gaming your opponent to maximize your marginal return. That's fine, you have to play, but it is best to stay in control of the process.

To that end, I think general pestering (ala malevolent) is your best bet. If you escalate, you just don't know what will happen - lawyers fees, lost judgment, pissed off clients causing bad word of mouth, whatever. You really just want to turn two years into one year (or turn 50% into 75%), and then call it a great success. Pestering and negotiating can do that for you.
posted by Chuckles at 2:47 PM on April 15, 2007

And if they're going to put you off, equity is a very reasonable compromise.

I like that! Assuming they are likely to reject the proposal, of course, because you really don't want a share in their failing business :P It is something they likely haven't considered at all though, that should make them sweat a bit, and maybe sweat some £££.

Either that, or finance charges.

I'm not sure, but I think this should be a given. I'd think you can unilaterally assign a fair interest rate (prime!) as of some reasonable date (the first May?), if you haven't done it yet.
posted by Chuckles at 2:58 PM on April 15, 2007

IAN(Y)AL, and I'm not from the UK...

It's clear that you had a contract. What is not clear are the terms of the contract. It seems clear that it is at least partly a verbal contract, but there may also be written terms (if you discussed the terms by email, etc).

You need evidence to support your version. As others have pointed out, email correspondence or your notes of telephone conversations, etc, may be evidence that they were to pay the balance on completion.

Pay attention to what they have said in explaining why they did not pay on time. If they have apologised for being late with the payment, then that may be an admission they are in breach of the contract.

Bear in mind that they might argue that they renegotiated the contract, and that there is a new contract allowing to pay in instalments. Fortunately, you have consistently demanded that they pay faster than they have been, which undermines that argument.

If their company is unable to pay its debts as and when they fall due, then it is insolvent. You may apply to have the company wound up, which might get you some of your money back, but not necessarily all of it. That will depend on the company's assets and its other creditors. You might be better off waiting to get the money back in dribs and drabs, if you can afford to wait. Then again, the threat of winding up their company might push your claim up their priority list.

You should also be aware that a company director that knew (or ought to have known) that the company was insolvent might be liable for wrongful trading. This might allow creditors to recover from the directors rather than the company. However, the process depends on the liquidation of the company.

You said that this is affecting you financially, and it sounds like you have a few different options. If I was you, I'd be asking a lawyer to go through it with you.
posted by robcorr at 9:35 PM on April 15, 2007