I just got off the phone with Sam, a freelancer who provides graphic arts to studios, advertising agencies and commercial businesses in Los Angeles. She has been in business for two years but still conducts all of her business transactions verbally. She called me because she had several non-paying clients.
Here’s a common scenario Sam faces:
Client asks Sam to design a horse image to celebrate American Pharoah’s 2015 Triple Crown victory. They talk through the details and the design requirements. Sam tells client the work will cost $2,500. Client agrees. After putting in 10 hours of work, Sam presents several designs to client. Client looks at them and decides he wants to capture the excitement of the crowd at the horse race instead of the horse. Wanting to please client, Sam scraps her designs and starts anew. Many hours of work later, client accepts Sam’s crowd design but puts off paying her. Client now ignores Sam’s emails and phone calls.
Substitute a few of the nouns. Do you see yourself in this situation?
Sam hired me to draft a template contract for her graphics business because she is tired of reliving the above encounter with different clients. In one instance, she had $12,000 on the line. Her two main issues are an unclear scope of work and getting paid.
1. Unclear Scope of Work. Do your clients change their mind about what they want in the middle of your working relationship? Are you accommodating your clients’ desires at no additional cost to keep them happy? As the business owner, you are 100 percent to blame for this.
Before starting any work, you must be clear about the scope of work you are providing. Your client can look at your scope of work and add to, change, or agree to what is written down. All parties now have the same understanding of the work to be done. Should there be questions two weeks – or two years – later on what you were going to do, you can refer back to a written document.
In Sam’s case, the scope of work can be as simple as, “I, Sam, will design a horse image to celebrate American Pharoah’s 2015 Triple Crown victory for Client.” Also, if appropriate, you may include a time frame for the work.
When the client changed his mind and wanted to capture the excitement of the crowd at the horse race instead of the actual horse, a written agreement would have supported Sam’s position. First, she could show that she delivered what the client initially asked for and should be paid for her work. Next, Sam could choose to accept the new project for $3,000 or decline that work. A clear scope of work at the beginning helps Sam get paid and minimizes the free work she unwittingly does. (The written agreement also helps the client if Sam fails to deliver on her work as specified–it works both ways.)
2. Getting Paid. I know of no foolproof way to identify non-paying clients before they become our clients. Fortunately, a correctly drafted contract can lessen your chance of signing up non-paying clients.
• Get Paid Before Starting Work. Always, always ask for a deposit beforehand. As the business owner, you decide if you are comfortable with a nominal amount, one-half, one-third, or some other percentage of the total. That way, even if the client never pays another cent, you have something for your trouble. It also tends to eliminate the price shoppers who are not serious about hiring you.
• Reward Good Behavior. Sam can make the following offer: if the client pays in full before she starts work, the horse project will cost $2,500. Understanding that he may not have the full amount, Sam will accept two payments of $1,350 or three payments of $1,000. In other words, it will cost $200 to $500 more to finance her work. Presented a different way, Sam can tell her client that the horse project will cost $3,000, and he can spread it out over three payments. But if client pays the entire amount up front, he will receive a $500 discount. Do not underestimate the power of a reward to help you get paid.
Addressing these issues in a written contract should make your working relationship much smoother. As a bonus, your stress level should decrease as well.
About Your Columnist
Quyen Tu is a featured columnist for Women Taking Charge, the official blog of Connected Women of Influence, where she explains complex legal concepts in layman’s terms. Her passion is working with and supporting mission-driven entrepreneurs who make an impact in their community. She handles her clients’ legal issues so they can change the world. Quyen enjoys volunteering, connecting people, and challenging herself physically. She aims to visit all seven continents, and plays along with the Jeopardy contestants. Quyen Tu is an Attorney at BCorp Creatives where they specialize in helping successful business owners and entrepreneurs improve the world, starting with their community. We help you do well and do good.