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Few people want to work for free. However, some small-business owners and freelancers are doing just that, according to the Independent Economy Council. In an October 2021 survey of self-employed professionals across a range of industries, 72% of respondents had invoices that weren’t paid by clients for completed work.
In addition to being frustrating, not being paid for your work directly impacts your cash flow. Tapping into personal funds, accessing a line of credit and securing some type of short-term loan are options you may consider when experiencing a cash shortage. However, these temporary solutions aren’t ideal and may not always be available. Instead, here are some steps you can take to help avoid nonpayment issues.
1. Sign a contract
“The number one mistake freelancers make is not working under a signed contract,” says Rafael Espinal, executive director of Freelancers Union, an organization that supports independent workers. “Having a written contract allows freelance workers to set the terms on when they’ll get paid, how much they’ll get paid; and it will also protect them if they don’t get paid and they have to go to small claims court.”
2. Ask for an upfront deposit or retainer
Consultants and small businesses may also want to consider asking for an initial deposit when finalizing their contract. Getting money upfront provides legal proof that both parties have committed to the contract, ensures you’ll receive some payment for your work, and can provide you with money for expenses related to the project. It may be helpful to let your client know that a retainer is common practice.
3. Request payment at time of delivery
Ask for payment at the time goods and services are delivered, especially when working with a new customer. “Don’t be afraid to collect your money upfront,” says Barry Moltz, a small-business expert and author. He says that “giving a customer credit is a privilege, not a right.” After a customer establishes a consistent pattern of paying, you can then consider whether you want to offer them extended payment terms.
4. Bill customers regularly for ongoing services
It’s recommended that you bill your customers every month, at a minimum, when providing ongoing services. “In fact, a lot of people actually doing consulting services should really bill their clients every two weeks,” say Moltz. By billing frequently, he says, “you don’t get too far behind in the work you’re doing and how you’re getting paid for it.” Invoicing software, including some free options, can help you automate the billing process.
5. Accept multiple payment methods
You can make it easy and convenient for your customers to pay for your products and services by accepting multiple forms of payment. Common payment options typically include cash, checks, credit cards, debit cards and mobile wallets. Software, specifically point-of-sale systems software, is typically necessary to accept card and mobile wallet payments from customers.
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6. Watch for warning signs of potential nonpayment
There are red flags that can signal a client may not pay you for your work. According to Espinal, “One is that they don’t respect your time.” For example, if a client is constantly emailing you throughout the day, it can indicate a lack of respect for the time you need to work or meet with other clients. “Two, in that same vein, is if you find that they’re bad communicators,” says Espinal, which could include being “unresponsive to your questions or your inquiries.” Finally, “another is that they question your rates multiple times,” he says.
7. Take legal action
Both Espinal and Moltz agree that legal action is an option to consider as a last resort when a client hasn’t paid you. If you’ve exhausted other options, taking a customer to small claims court may be the only way for you to collect on a delinquent payment. Regardless of whether you’re successful in getting paid, such an action is likely to end any opportunity of working with the customer again in the future.
In recent years, legislation has been enacted to protect freelance workers in some states. New York City’s Freelance Isn’t Free Act, passed in May 2017, gives freelance workers the right to work under a contract, receive timely payment and be protected from retaliation. A bill has been proposed to expand these rights to the entire state of New York. Similar laws have already passed in Minneapolis and Seattle. The U.S. Chamber of Commerce, SCORE, the National Business Association and similar organizations that advocate for the rights of business owners and the self-employed can be helpful resources.