How to Collect Overdue Payments for Freelancers and Independent Contractors

How to collect overdue payments for freelancers and independent contractors - FirmLetters

Almost every freelancer, independent contractor, or novice entrepreneur will experience, at some point, the frustration of attempting to collect payment from a client. You’ve upheld your end of the bargain and finished everything you were asked to do… and suddenly, the client has effectively ghosted you. 

How do you request payments from clients for projects or services that have been completed? How should you manage your relationship with the client in these situations? What can you do to protect yourself ahead of time? Do you need a demand letter? At what point should a lawyer get involved? 

In this article, we’ll explain the various approaches you can take to collect the payment that you’re owed. We will also tell you about how Demand Letters can quickly connect you to a lawyer that will send a demand letter for a low flat rate, so you can get compensated for your hard work. 

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Legal Protections: Freelancers Versus Employees

When it comes to getting paid for their work, freelancers do not have the same protections as employees who are paid wages by an employer. As an employee, if your employer fails to give you a paycheck, you can file a complaint with your state’s labor board. Even if the employer goes out of business and files for bankruptcy, employees have rights as creditors for their unpaid wages. Employees can also take advantage of unemployment benefits in certain situations. Labor laws offer many benefits to employees that protect them from deadbeat employers.  

However, as freelancers and independent contractors are aware, they are not part of any business payroll and don’t have the same protections as employees. If a client or customer refuses to pay, freelancers and independent contractors basically have to try to collect the unpaid amount on their own, with the court system acting as a last resort. 

This lack of protections for freelancers can put them in a precarious position if a client fails to make payment. This exposure makes it that much more important for freelancers to ensure they do everything they can at the outset of a client relationship to ensure their best chances of collecting payment. If all else fails, having a demand letter sent by an attorney can help settle the dispute without the cost and headache of going to court. 

What To Do at the Outset: Set Clear Expectations

An important aspect of establishing and maintaining healthy relationships between yourself (as a freelancer, creator, independent contractor, etc.) and your clients lies in setting clear expectations from the outset. This requires setting defined boundaries and sticking to them. 

If you produce a deliverable of some kind, such as artwork, a musical composition, blueprints, a design, or coding for a website, you should establish several key parameters from the start: 

  1. What is the scope of the project? 
  2. What are your financial requirements for this project? For example, will you be asking for a down payment to cover the cost of time and effort spent on design creation? Will you allow clients to split payments after each stage, or will you be paid in full upon completion? 
  3. What are you withholding if you do not receive payment on time? 
  4. What are the consequences of nonpayment? Are there late payment penalties?

The last thing anyone wants to do with a new client is get dragged down by negotiating details in a work order or contract for a project. However, setting clear expectations with clients helps mitigate potential miscommunication later in the relationship. It’s important to be specific about what each side is expecting and what the penalties are for not adhering to the rules that have been set.  

Many freelancers are timid about negotiating these details with a client. After all, bringing in new clients is hard, and no one wants to alienate a client at the beginning of a potentially long and lucrative relationship. However, it’s important to keep in mind that you’re running a business, and a client that isn’t attentive to your payment needs is probably not a client worth keeping.

Being clear about your payment expectations helps avoid more awkward conversations later when both sides are not on the same page. 

Lastly, if the client gives you their own form contract, don’t be afraid to negotiate the terms. Contracts are not one-size-fits-all—you have to ensure the payment terms of an agreement work for your business and allows you to thrive.  

Keep Clear and Detailed Records

One aspect of maintaining a clear communication line with the client is ensuring that you maintain transparent records of your dealings with the client. 

Any important agreements for a particular project or service, and any subsequent modifications, should always be written down, whether in an email, contract, or other documents. If you discuss these arrangements over the phone or in-person, it can help to follow up with an e-mail that outlines what was discussed, what was agreed to, and what the next steps are. This helps avoid problems that might arise if someone mistakenly forgets details of a conversation or has any uncertainty about what was discussed. It also makes you appear more transparent and organized to your client. 

One additional tip for working with new clients: find a way that works for you to keep personal details about them. This not only helps develop a closer relationship with the client because you are more likely to remember and ask them about the things that are important to them (like their children or milestones in their life), but it’s also a good way to find alternate methods of contacting the client. When you have an address, full name, phone number, and an e-mail, you are more likely to reach that person in case there is a non-payment issue in the future.

How To Request Payment From a Client

Let’s imagine a scenario where you either did not set clear expectations from the outset, and now your payment is in limbo, or you did set clear expectations, but the client still hasn’t paid. What should you do? 

1. Politely Ask

As obvious as it may seem, much of the time, the failure to meet expectations stems from people assuming the other party knows or should know exactly what is expected of them. It’s easy to be caught up in self-validating rhetoric—after all, shouldn’t the client know that they have to pay you? It may very well be likely that the client knows that they are obligated to pay. However, they may be waiting for some indication that payment is due or anticipated. 

If the client is a larger organization, the people responsible for payments (such as an accounts receivable department) may be different from your primary contact and unaware that payment is due. Sometimes clients make an honest mistake and forget or have the wrong dates in their calendar. It’s a good idea to initially assume good intentions so you don’t offend anyone by making aggressive demands. There are several ways to politely ask, for example: 

“Hey! I just noticed that the deadline for payment past. I haven’t received anything yet, let me know if I missed something. Here are my payment details again, in case you need it.” 

“Hello, I wanted to let you know that [project] is ready to be delivered as soon as I receive payment. Do you prefer Venmo or are you more comfortable with a different payment platform?” 

“Hi! It has been a while since we last touched base, but I wanted to update you that [product] has been completed. I’m prepared to ship it and provide a tracking number as soon as the payment is completed. How would you like to pay?” 

These examples politely state that payment is due without implying any fault or malicious intent. Moreover, these examples don’t ask whether payment is due—it presumes that it is and moves the conversation forward into how payment will be made. 

2. Set a Deadline

Let’s say you’ve asked nicely, and the client has still not paid. At this point, you can send a more firm follow-up that sets a clear deadline and potential consequences. By establishing a firm deadline, you are transparent with the client about your expectations and consequences for non-payment, and any subsequent action after the deadline will appear to be more reasonable. 

“Hi [client name]! I expect that you received my earlier messages regarding payment (see thread below). I am only waiting on your payment to ship this out. Please respond and pay [amount total] by [deadline], otherwise I may have to impose penalties and other consequences, per our contract. Please let me know if I can answer any questions.” 

“Hello! Unfortunately, I still have not received payment from you. I understand that you may be busy, but per our agreement I need to receive full payment for [services rendered]. The deadline to receive payment is [date]. According to the terms of our contract, I may ask for an additional fee to be paid for all invoices that are more than 30 days past their payment date. Please let me know if you have any questions.” 

Both examples more sternly articulate the request to pay than the initial outreach messages and outline potential consequences. Note, however, these messages are still friendly, professional, and factual in tone. You want to avoid conveying emotion, even though you may be feeling frustrated. There is a good chance the client will pay, and you want to preserve the goodwill and relationship you have with the client and maintain your professionalism. 

Should I Send a Demand Letter?

Unfortunately, some clients will continue to ignore your request for payment (or in more nefarious situations, they may have never intended to pay you at all). Sending a demand letter is a more serious and formal method of requesting payment and can imply or explicitly state that legal consequences may follow if you are not paid. How do you know when you need a demand letter? 

A demand letter should be used when you have exhausted your other options, but you aren’t quite at a point where you want to file a legal claim. An attorney is not required to draft or send a demand letter, but it’s recommended. A demand letter will make much more of an impact and be taken seriously if it comes from an attorney. An attorney will also know how to craft a clear, concise letter and avoid any mishaps. If you’re dealing with a larger organization, a letter from an attorney will draw the attention of the higher-up decision-makers when it comes to paying invoices. A well-written demand letter can encourage the client to settle the disputed payment right away before both sides contend with a more costly lawsuit. 

A demand letter for payment should generally follow these rules: 

  • Use a firm but respectful business tone; 
  • Explain why you are writing the letter and outline the relevant facts in a chronological manner; 
  • Articulate the exact invoice that is overdue, how much is owed, and how a late fee might apply; and 
  • Establish a deadline and how the payment must be made.  

Having the letter come from an attorney on their letterhead is a major bonus. The drawback of using an attorney, of course, is that lawyers can be expensive – more than it might be worth helping your situation. For example, it’s probably a better idea to write off an uncollected amount of $1,200 rather than pay a lawyer $1,000 for a demand letter. 

Fortunately, Demand Letters was founded to help freelancers, independent contractors, entrepreneurs, and small business owners like you send out demand letters to collect payment. For a low flat rate, a lawyer will draft and send a demand letter for payment to your customer or client. Ideally, the client will pay up right after receiving the demand letter. If they don’t, you may decide the matter just isn’t worth your further time and energy, or you may decide to move forward and sue the client. 

How to Manage the Relationship Moving Forward

1. Learn From Your Mistakes

The first step of managing the relationship with the client after a payment issue is to learn from your mistakes. Did the failure to pay result from a lack of communication regarding expectations? It can be a good idea to set up a checklist to review with new clients to prevent this issue in the future or to create a standard contract template that you can modify from one client to the next. 

Did the failure to pay result from each side having different interpretations about what the project entailed? If so, it can be a good idea to continuously memorialize the project’s specifications as you go along, and make sure there is a written record shared with both parties that address things like scope, payment deadlines, and modifications. 

2. Don’t Hold Grudges

In the professional world, there is no place for pettiness or grudges. It’s certainly unfortunate and unprofessional that your client failed to pay in a timely manner. Still, it’s important to continue treating clients with respect and not being hung up on a single failure to pay. There can be innocent explanations for nonpayment. Sometimes, life really does get in the way – and it can make simple tasks like paying for an invoice fall off the client’s radar. 

However, being firm about re-establishing clear boundaries and expectations and holding grudges are two different things. It is perfectly acceptable to clearly communicate to your client what you expect in terms of responsiveness or payment in the future. A good business owner will know how to adapt and tailor themselves to the client’s needs and preferences. So, if you know your client is forgetful and needs additional reminders ahead of the payment deadline, it may be helpful to set up automatic e-mail or SMS reminders for that client. Part of letting go of grudges means acknowledging how your actions can be modified to make this a win-win situation for everyone, and that flexibility may be the key to client retention. 

Final Thoughts

Although a demand letter should not be your first response to nonpayment for goods or services, it should be an option in your general plan of moving forward when it comes to overdue payments. Much of the work involved in effectively collecting payment requires front-end preparation and organization, so be sure to think carefully about what you are communicating to clients from the outset.  

If you do run into a client that is ignoring your invoices or refusing to pay, a demand letter sent by an attorney is an excellent way of giving some clients more than just a “nudge” to ensure that you are paid for the work you completed. If you’re ready to have a lawyer begin working on your demand letter, click on the link below today to get started. 

Get started with a demand letter to collect overdue payments for freelancers and independent contractors - Demand Letters

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