Friends Are Facing Difficulty In Getting Payments From Clients

Discussion in 'Working Women' started by Needtobestrong, May 20, 2023.

  1. Needtobestrong

    Needtobestrong Platinum IL'ite

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    One of my friend is an entrepreneur....she owns a small web development company ..in a metropolitan city in India..that she started recently..services are web development, marketing , app development etc
    It’s not well established and a small team..she has hired a couple of interns and 2 experienced resources to manage the work.
    The problem is that clients for whom she provides services are not being timely in making the payments..they will make a small advance payment, then small amount in between and postpone paying the major amount remaining..many projects are of app Maintenance too which require monthly or quarterly payments..these payments don’t happen on time..some of them pay late..some of them default in payments and projects are discontinued..and very few clients pay on time..
    She has to pay her employees, pay for company expenses , licensed software’s etc but due to irregularity in client payments she isn’t having a tough time...
    As it’s a small company she is having a tough time in saying no as it’s not easy to get well paying clients..and not so well established or doing well that she can say no to clients who are paying late..

    She is worried , she has to dip into personal savings sometimes to manage when payments are delayed. Please advice how the client payments can be got on time.

    Another friend of mine works as a freelancer...she also works in development, marketing kind of work as a freelancer..same issues in getting payment from clients...on their behalf would like to know how these issues can be managed.
     
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  2. Thyagarajan

    Thyagarajan IL Hall of Fame

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    Hi @Needtobestrong IL Folks welcomes you with arms wide open. It was long hiatus. Trust you are in robust health & in good cheers.
    Delayed payments - she has to tolerate - these clients might be getting payments from their clients in USA & or Europe. Ongoing economic situation - war induced clients in these geographies are delaying payments but they are not recalcitrants.

    Clients who are habitual making Late and irregular payments one should be wary. These companies to be Explored for their financial soundness and capacity to pay to their own employees.

    Subtle enquires required to be made in this regard to decide to continue with their business.
    My two cents.
    Regards.
    God Bless.
     
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  3. Anisu

    Anisu Platinum IL'ite

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    Your friends should be having a clear process to collect the payments.
    They should also work on the payment terms.probably ask for 50% payment upfront and 50% after work completion. Or plan make milestone based payment. This would help them to manage their cash better and avoid delays. Also for monthky payments for maintainence work, make it an advance payment quarterly whereever possible.
    They should alao see to it that quality of work is maintained.
    There has to be a dedicated person to make calls to the clients and collect the money. He/she has to remind them about the pending invoices with regular followups over emails and calls. Remind them about the credit terms.
    Its their hard earned money and they would have every right to ask for it.
     
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  4. Viswamitra

    Viswamitra IL Hall of Fame

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    Ask your friend to have monthly maintenance paid through auto debit to their corporate credit card. This will pass the liability of default payments to the clients. Build a payment system that discount the bill by 2% if paid in advance, 1% if paid on time, 5% interest if paid within 30 days, 7.5% interest if paid within 60 days and 10% interest if paid within 90 days. Build this into your contract terms and renew the contract every year.

    If their situation is grave and likely to miss Payroll, they can ask their banker to give a line of credit or bill discounting facility.

    If they are getting 50% advance and if they have a good margin in their contract, cash flow shouldn’t be tight. I feel they are underselling their services to be competitive with very little margin. It is important to scale the revenues in initial years but not at the cost of compromising margins. A good developer comes with good pay and the clients must be willing to pay a decent margin.
     
  5. Laks09

    Laks09 Moderator Staff Member IL Hall of Fame

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    @Needtobestrong - I tried everything but it’s a tough conversation and most people put off paying small businesses or contractors unless they absolutely have to. I am US based and it was still hard to recover my pay - it took 18 months after the fact to get paid. From that experience I realized that running a small business is not worth the headache. Even with a contract, most small businesses find it hard to recover their hours and hours of work. I’ve had others in similar situations.
    @Viswamitra sir is right. After a while I started charging 25% upfront and the rest in 25% chunks at reasonable intervals so I had 75% before deliverables are met. I also started picking and choosing clients and only did people who wouldn’t micro manage(which you know right at the start). It’s hard to pursue any action against defaulters so I wouldn’t advice any legal counsel unless it’s a large sum of money and worth the effort.

    For work she has already done and not received payment, work out a monthly payment plan. If it makes sense, write off 50% or a percent of the invoice and get the rest paid in full.
    A sternly worded email is what kick started the payments for me at least. If none of those work, I have not many ideas.

    All said, it is a very difficult overhead. Invoicing and chasing invoices and ensuring payment etc. Takes the joy out of the work! I hope she finds a steady source of income from one or two clients and slowly is able to build her client base. Good luck to her!
     
  6. lavani

    lavani Platinum IL'ite

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    i am not sure if your friend has shared complete details. any projects start with a MSA (master service contract) and Statement of Work. , this is a legal doc which helps both parties . It has details on payment days (30, 45) . She must be raising an invoice to the vendor or client.

    She can hire a attorney or send a warning . is she working with the client or another vendor who works with the client.

    Clients means actual business - they do not like to mess up with any litigations.
    vendors - means just body shops. - they do.

    i learned this from dh.

    my advise: stay out of it . while it sounds painful and hurt. it can get messy. if a person is smart to hire people, they must learn to connect with legal also. unless you have a stake in it. your advise can go south and you can be blamed for any issues.
     
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  7. Needtobestrong

    Needtobestrong Platinum IL'ite

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    Thanks you ..was delayed in logging in and hence the late reply.
    The startup is located in a metropolitan city in India..
    So need suggestions from Indian perspective.
    I think many clients take advantage form smaller firms as they are not so well established. And clients are smaller and local clients who don’t pay that well or regularly. After initial payment, they either delay or abscond or make smaller part payments which are insufficient to cover operating costs. And not responding to mails.

    The initial payment usually goes well..recovering later instalments and monthly payments for application maintenance projects is a very big pain for her.

    She can’t say no to them as she needs the income.

    She has connected with some marketing people and some of her peers who also own startups to find some solution.
     
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