Keys That Click - Minding your own design business and other observations

Posted in Business, on April 30th, 2010 by Carlos.

I just finished reading the Wall Street Journal article entitled, More Freelancers Fight to Be Paid, and would have to agree that for self-employed individuals collecting on your accounts receivable can be a daunting task. It can be like asking Howie Mandel to “open the case” and hoping for the best. Having to play the role of the Accounts Receivable agent is perhaps one of the reasons that keep people away from running their own business, or perhaps something people who jump in too soon fail to realize they have to do. It can be tough, and it can be ugly. But if you play your cards right and follow your gut (assuming your gut leads you in the right direction on most occasions), you can minimize those pains.

No one wants to work for free, which is essentially what you are doing when you are unable to collect on your invoices. Not only have you put in the time doing the work, but you then need to put in the time to collect on your receivables. I personally think one of the major reasons that land freelancers in hot water is accepting everyone and anyone as a client. The temptation of the potential work and income can be so great that you might wind up turning a blind eye to some red flags that should be signalling you to turn away. Sometimes it takes being burned a few times to be more picky in choosing your clients.

Trust is a Two Way Street
I’ve turned down work because things just didn’t feel right with the potential client in initial meetings. In one scenario, the client seemed very skeptical of me, asking me how they knew I wouldn’t just use a prepackaged web template when designing their site, and that I was actually doing the work myself vs outsourcing it for cheap labour abroad. If someone isn’t willing to trust you and respect you as a professional, don’t give them the pleasure of blindly trusting them. The potential income can be hard to turn away, but imagine doing the work and not getting anything for it. Or even just doing the work and having to put up with a character that treats you poorly. That’s time you could have been spending on finding other work with reputable clients. Of course, it’s not always so black and white. Skeptical potential clients aren’t always bad clients. They themselves may have been burned in the past by freelancers. Ask them about it. If they are making valid points, there might be hope for you still. If, however, they’re claiming that the designer was in the wrong, but you don’t necessarily agree with their arguments, tread lightly.

Ask for Credit References
Asking for credit references is quite common and any company that is worth doing business with will gladly provide you with them. If they start balking at this stage, perhaps heading for the door will save you a lot of work and unpaid time. Sure, they will always refer you to their best and happiest creditors, but the fact that they have happy creditors at all could be a good sign.

Can’t I Just Request A Down Payment?
Yes, you can. But it won’t always work. Many commenters to the WSJ article suggest that requesting down payments on projects is the way to alleviate these issues. However, some companies have policies that won’t allow that, but it isn’t necessarily a sign that you need to turn and run. Red tape can be so thick, especially in large companies, that multiple payments can very time consuming and difficult. Sometimes, clients may simply be hesitant because of their own past experiences with being burned by a freelancer. Do what you can to alleviate those concerns. Just imagine you were looking to outsource some of your work and the scrutiny you would employ in choosing someone. If, however, they are down right rude about not wanting to pay you a deposit, that’s just poor business sense, and you might be better off skipping the project and the client altogether. If you are going to ask for a down payment, you need to put some work in before you invoice for your first cheque to show the client you are serious about the project. Even it if it’s just an initial proposal on how you intend to approach the project, a gesture like that can put the client at ease and let them know you will be following through on your end of the deal.

Asking for Your Money
I’ve luckily only had to wear the pesky and persistent Accounts Receivable hat on a handful of occasions. Generally, it was for clients I knew would pay (from having a history of payments that were on time, and just being generally trustworthy people), but I had to remind them about outstanding invoices that had gone past due. It happens, people get busy. Heck, I have even forget to follow-up on invoices because I was too busy to realize they were overdue. Your first attempt at collection should stay civil, but direct. Crying foul too often and too loudly can backfire in the longterm. Being confrontational right off the bat can anger your client and possibly delay your payment further. Sometimes it can just be an honest mistake. If, however, you are getting the run-around and lame excuses, you might need to start stepping up your game. What I find can help is talking to the Accounts Payable person/department (if they have one of course). The person you are dealing with on the project on a day-to-day basis may not know the accounts payable process well enough, so cutting to the chase can get you some answers. Don’t do it behind their back though – it won’t earn you any gold stars.

Bad-Debt
If you’ve exhausted your options and know you won’t be collecting on your invoice, check with your accountant to see if you can write the amount off as a bad debt expense. You should at least not get taxed on something you never wound up collecting on!

Unfortunately, being in business for yourself means that you will run into deadbeat clients from time to time, and lose your shirt in some instances. Fortunately, being the sole decision-maker let’s you make the final call on accepting a client or project. Be smart about your choices. You don’t have to say yes to everything that comes your way. When you find clients that pay, hold on to them, and make sure you let them know you appreciate their business.