Collecting on overdue invoices

[cbscreative]

This really comes down to a matter of your business model. Frederick, I really don't know your industry well enough to know how most business coaches handle the payment structure. What I can tell you is the half down, half when complete (or divided into thirds) model is standard in our industry. There's no rule that says we need to do it this way, but it is a common practice. It's so common, I call it standard.

There's also something about our industry that makes us highly susceptible to getting stiffed if we don't use this model. To explain why would be little more than speculation, but every experienced designer has found this out. The down payment really does work because anyone who has a problem with it usually has a problem paying at all. It is rare for anyone to question the down payment, or at least I've not had that in a long time. It could be that people who don't like to pay easily find those cheap providers all over the Internet so the rest of us don't see them much.

As for the trust issue, that's not a problem either. I'm rarely approached out of the blue. It either comes as a result of my online presence, or, if they do just happen to find me, they do some research, then contact me and often tell me they feel comfortable because they researched in advance. Either way, the trust is built ahead of time.

With that said, I began testing a different model a year or so ago, and it's been working well. The fact that the 50/50 model is standard got me thinking that being different could be interesting. I'm currently making some other changes to my company so I can better implement the new model. There's a significant potential to get too much work too fast, so I need to plug that before it springs a leak. That's a good problem to have, but not if things spiral out of control.

But I fully get what vangogh is saying. It's not so much about distrusting everyone, there's just something about our industry that invites being taken advantage of if you don't put the proper checks and balances in place. Experienced designers know that, and that's why almost all the best design people require a third to half down.

[billbenson]

I suspect, steve (cb) that in your industry the perceived value of your product by most customers is lower than they are paying you. Suppose you did a great website for me and I followed through updating and marketing it successfully and made a bunch of money. I recommended you to friend X who has a business but no in depth understanding of web marketing. You sell him a nice site for say $5k. He sits on his butt and expects it to make money. He also probably thinks you kicked the site out in an hour. You gave him a good product but he thinks he got screwed.

I suspect the above scenario is quite common. It gives good designers and developers a bad name. Consequently, a higher instance of customer defaults.

I'm just guessing with the above, but it seems likely to me. Your industry is very different than most IMO.

[vangogh]

is a completely unfounded statement in the greater scheme of things.

Frederick my statement was based completely on experience. Early on I did things different and 100 percent of the time when money wasn't brought up early the client didn't pay. Like Steve said it's standard in the web design industry (and a lot of other service based business. I know Dan collects a deposit and will even ask for full payment in advance depending on the price of the project) to charge a deposit up front. It doesn't have to be 50%. Web design lends itself nicely to 3 or 4 equal payments since there are several deliverables along the way.

You have to consider that in web design the seller has to do a lot of work early on. It's not uncommon for a web designer to work for a few weeks, deliver an image, and then the client says no and moves on. A few clients like that in a row and you could be out of business early on. I've had clients approach me where they wanted me to do a design and they also asked several other designers to submit a design and they would only pay the one they liked. Also once you've handed off a design image a client can say no and then give that image to another designer and there's not much you can do about it unless you want to go to court.

There are definitely projects where I would consider it worth the risk to come up with a design without getting paid. For the typical small business website it's not worth the risk. When I compare the amount of time I stand to lose with the amount of money the project can bring in, it's simply not a worthwhile risk, especially when there's usually someone else contacting me willing to give the deposit or a project of my own to work on.

Unfortunately in every case where I didn't ask for the deposit upfront I ended up having issues getting paid.

When you think about it, it's pretty standard everywhere. When I go to the movies I have to pay before seeing the movie. You don't walk into a store take something home and pay for it later. You pay before you get to take it home. You might pay on credit, but that's a different business model. Most small business aren't extending you credit. It's larger companies that are in a better position to take the risk.

[Spider]

...When you think about it, it's pretty standard everywhere. When I go to the movies I have to pay before seeing the movie. You don't walk into a store take something home and pay for it later. You pay before you get to take it home. You might pay on credit, but that's a different business model. Most small business aren't extending you credit. It's larger companies that are in a better position to take the risk.

Most small service businesses do.

- The plumber comes to your house, you pay him after he has finished the work. A plumber working for a contractor gets paid some days or weeks after the work is finished.
- And the electrician, the a/c contractor, the washing-machine repairman, and so on.
- You drop your dog off at the groomer and pay for the groom after the work is finished.
- You pay the dentist when you leave, not when you arrive.
- You hire someone to paint your house and pay them when they have finished.
- You hire someone to mow your lawn and pay them when they have finished.
- I hired a small contractor to remove a tree from my yard - he asked to be paid two days after he had finished to make sure I was satisfied.
- Take your watch to a jeweler to be cleaned/repaired and you pay when you collect it.
- My wife is having some legal matters dealt with and is paying as the attorney completes each phase. This is not a special arrangement, it is how he asked to be paid.
- Clothes taken to the laundry are paid for after the work is done.
- Seamstress work is paid for when it is finished.
- Take your car for a service and pay for it after the work is finished.
- A one-man machine shop across from me has a CNC lathe. He makes small custom parts and gets paid weeks after the work is done and items delivered.
- A bookkeeper friend gets paid by her cleints at the end of each month of service.
- An engineeing consultant friend gets paid at the end of the project, unless it's a large project when he arranges installment payments after each section has been completed.
- A public speaker spends much time in preparing for a speech, and gets paid after the speech is given
- Life and business coaches (including me) expect to be paid monthly, in arrears - after the work is done.

In fact, other than the movie you mentioned and web design, SEO, etc., I am hard pressed to think of any service one pays for before the service is provided. At least, here in Houston. It might be different where you live, VG. It can hardly be called standard procedure everywhere.

That's not to deny the need you feel you have to be paid up front, but most other small business service people manage to run their business on a basis of work first, payment after.

[cbscreative]

I've had clients approach me where they wanted me to do a design and they also asked several other designers to submit a design and they would only pay the one they liked.

That demonstrates the lack of respect many people have for designers. This definitely does not mean everyone, maybe not even most, but it is surprisingly common. Experienced designers shield themselves from working with these types of clients.

While no one is likely to argue with most of your examples above, Frederick, I can assure you with absolute certainty, it does not work well in our industry. There is a reason nearly everyone in the design field asks for money up front. Like vangogh said, EVERY time it was not made clear in advance, there were problems. I have found that to be true too.

You will find designers willing to sell themselves short, especially newbie ones. If they don't respect themselves (and an amazing number of artists don't), no one else will either. The term starving artist has been around a long time, and I believe it is a mostly self inflicted wound. I doubt those who invite disrespect will every cease to exist.

Just look for something like cheap logos online and you will see an abundance of disrespect for the value of design. Personally, I'm OK with that because it gives those who place no value on it a place to go. That way I don't have to deal with those types of clients. Many designers get mad about these kinds of services. I've come to realize they're doing us a favor because I rarely get the tire kicker calls. I'd rather work with people who realize success doesn't come without effort, and making a professional presentation is important.

@bill, your example really isn't that much of a problem, but I'm speaking only from personal experience. I find that clients who realize the value of their marketing also realize the value of doing all the other things well. If I get someone who thinks I can put lipstick on a pig, I really can't help them much. I tend to attract clients who know business principles well and repel potential clients who don't. But I've spent years honing that skill.

[Spider]

We have shifted away from the original question but...oh, well!

That demonstrates the lack of respect many people have for designers....

There's more to design than websites and I'm not familiar with industrial design, automotive design, oilrig design, and so on - but I am familiar with architectural design. It is not uncommon for a client to ask several architectural firms to make a proposal for a specific building. Of course, each architect will not supply a full set of working drawings, but they will each offer proposed specifications and, at least, an artist's impression of the project. In fact, some high profile jobs' RFP can include a considerable amount of design with exact scale models and plenty of drawings, and are, in effect, competitions.

As wikipedia says -- Architectural design competition - Wikipedia, the free encyclopedia

Architecture competitions have a more than 2,500-year-old history. The Acropolis in Athens was a result of an architectural competition, as were several cathedrals in the Middle Ages. In 1419 a competition was held to design the dome of the Florence Cathedral, which was won by Filippo Brunelleschi. Open competitions were held in the late 18th century in several countries including the United States, Great Britain, Ireland, France and Sweden.

The design of the Tribune Tower in Chicago was put to competition.

Right now, there is a massive one out --
Los Angeles, CA (August 10, 2010) The Southern California Institute of Architecture (SCI-Arc) and The Architect’s Newspaper are today launching the Los Angeles Cleantech Corridor and Green District Competition. The competition asks architects, landscape architects, designers, engineers, urban planners, students, and environmental professionals to create an innovative urban vision for the Cleantech Corridor, a several-mile-long development zone on the eastern edge of downtown Los Angeles.

I can assure you, none of those guys will be asking for a deposit up front!

[cbscreative]

No arguments, Spider, but in those types of cases they vie for multi-million dollar prizes and everyone plays by the same rules. Our situation is still different.

If you shop around for writers, graphics, and web design, you'll find few if any experienced providers willing to go for that deal, and there's a sound reason for that. I will point out there are exceptions, like something very high profile for a good cause, but if you were to try doing what we do, you'd soon adopt our model. Or, you'd build a big guns agency that has to charge more to cover the risks and overhead. But it's very difficult to service smaller clients that way.

[vangogh]

Right and many times those clients aren't telling you in advance that you're competing against anyone. With the architectural projects like Steve said they're worth millions, quite a lot more than what one website for a small business client goes for. I mentioned above that I would be willing to take more risk if the reward was greater.

Good points about the other services based business. I wouldn't say it's most services based business, but clearly quite a few do charge after. One distinction I would make between the business you listed and the ones I'm thinking about is that those you listed are ones where you physically encounter the client and have some recourse to get paid. Plumbers and electricians for example can simply not leave until they get paid. Your mechanic doesn't return the car. With something like a website where files are transferred online there's little a web designer can do after the files are transferred.

A bookkeeper friend gets paid by her cleints at the end of each month of service

Perhaps. They might also require payment at the start of the month. In either case it's more of a long term relationship so there is greater reward. I have clients who's sites I manage. We work out an agreement where they pay me per month for an agreed upon amount of work. With most I charge them at the beginning of the month, but with some I've billed them at the end. It depends on a variety of things as to which.

And again as far as recourse the person doing your books wouldn't be someone you'd want to rip off since they are dealing with your money.

[Dan Furman]

Most small service businesses do.

- The plumber comes to your house, you pay him after he has finished the work. A plumber working for a contractor gets paid some days or weeks after the work is finished.
- And the electrician, the a/c contractor, the washing-machine repairman, and so on.
- You drop your dog off at the groomer and pay for the groom after the work is finished.
- You pay the dentist when you leave, not when you arrive.
- You hire someone to paint your house and pay them when they have finished.
- You hire someone to mow your lawn and pay them when they have finished.
- I hired a small contractor to remove a tree from my yard - he asked to be paid two days after he had finished to make sure I was satisfied.
- Take your watch to a jeweler to be cleaned/repaired and you pay when you collect it.
- My wife is having some legal matters dealt with and is paying as the attorney completes each phase. This is not a special arrangement, it is how he asked to be paid.
- Clothes taken to the laundry are paid for after the work is done.
- Seamstress work is paid for when it is finished.
- Take your car for a service and pay for it after the work is finished.
- A one-man machine shop across from me has a CNC lathe. He makes small custom parts and gets paid weeks after the work is done and items delivered.
- A bookkeeper friend gets paid by her cleints at the end of each month of service.
- An engineeing consultant friend gets paid at the end of the project, unless it's a large project when he arranges installment payments after each section has been completed.
- A public speaker spends much time in preparing for a speech, and gets paid after the speech is given
- Life and business coaches (including me) expect to be paid monthly, in arrears - after the work is done.

In fact, other than the movie you mentioned and web design, SEO, etc., I am hard pressed to think of any service one pays for before the service is provided. At least, here in Houston. It might be different where you live, VG. It can hardly be called standard procedure everywhere.

That's not to deny the need you feel you have to be paid up front, but most other small business service people manage to run their business on a basis of work first, payment after.

This is not so, Frederick. Many, many service businesses, especially contractors and the like, require a deposit. In the case of where you drop something off, they have your item/car/etc until they are paid.

In other cases, an item has changed hands - there's still the item, which has value.

My dentist is very clear about payment before any work is done.

Yes, my lawn guy comes and does my lawn, and sends me a bill - there are a few. But again, I'm a homeowner, and he knows where I live - the odds of me defaulting are smaller than some unknown guy on the web.

In my case, my clients run from startup entrepreneurs with more dreams than money to large corporations. My general policy (which I keep to myself) is I require a 50% deposit from people with less business credentials than I have myself. I've been in business ten years, am a member of the BBB with a spotless record, have a solid Dun and Bradstreet rating, and you can find me in your local bookstore. If you have less than that (in general terms - I need not require all of my "bill later" clients to have written a book), I collect 50%. It's never been an issue. And larger corporations and the like... I'll take a PO number. Plus, if we develop an ongoing relationship, I'll bill later - no problem. However, this is what burned the OP - I got burned by this once myself (to the tune of 8k), so even my policy would not have protected her.

One thing I *have* learned is any payment issue with otherwise good customers resets us back to zero. This is because payment issues usually start with a smaller sign months prior. If a client has always paid in 30 days, and all of a sudden they start going to 40+, that's likely a warning sign.

[Spider]

I don't mind whether you all insist on payment up-front or not. I have no skin in that game. I am a business coach: encouraging businesses to grow and expand is what I do. I assume that every business person I talk with wants to expand their business and want to grow into a big(ger) business. Many people here do not want to grow - that's fine - neither do I because I am retired. But I am a business coach and growth and expansion is what I encourage. If you don't want to grow into a big business, please excuse me, ignore me - there's probably some button on this forum that will hide my posts from you.

Until I am asked to stop, I will keep reminding everyone of things small businesses do that keep them small, and suggest things that lead to growth and expansion. I do that because I believe it is impossible to become a big company by continually doing what small companies do. To become a big company, you have to do what big companies do. In the words of the old adage: If you keep on doing what you've always done, you will keep on getting what you have always gotten.

I beg your forgiveness!

(Collective 'you' throughout.)