How to Get Paid: 5 Simple Changes to Your Contract to Make Sure Customers and Clients Pay
This is particularly scary if you put this into the context of the current and projected numbers of people who do, or will, freelance. According to a study by UpWork and Freelancers Union, some predict that the majority of U.S. workers will be freelancing by 2027.
The issues of non-payments and late payments are a big deal. They can mean not being able to pay rent or bills. They can mean not being able to grow your business, or even worse, not being able to continue it. They add incredible amount of stress, anxiety and doubt. They literally put one’s livelihood at risk.
The current structure of our laws and society is built to protect “employees”. This makes sense because until very recently, our labor market and laws were built around corporations. Majority of Americans went to work for a large corporation and so our labor laws mostly address issues relating to the relationship between an employer and an employee.
But with the growing number of full-time entrepreneur-freelancers and corporations hiring more “independent contractors” than “employees”, many people are no longer protected under current labor laws. And laws are very slow to change.
The best way you can protect yourself and your business is through your contracts. This is especially the case when it comes to protecting yourself against late payments or non-payments.
Here are four simple things you can add in your contract to make sure you get paid and get paid on time.
Require some or all of your payment upfront.
The best case scenario is getting it all upfront and making it non-refundable. Of course, that is not possible in most situations. But even getting a small percentage of your payment upfront is some insurance against non-payment and late payment. You can have it be in the form a deposit, retainer or just prepayment.
Add a late fee and a late penalty.
A late fee is a flat fee for every time payment is late. For example, your contract can say that if payment is received 10 days after it was due, you can impose a $25 late fee. It’s similar to what a landlord would impose on a renter for late rent payments.
A late penalty usually is interest that accrues for each month that payments are late. This comes into play when payments are really late. For example, your contract can say that if payment is not received within 30 days, you can charge an interest of 1.5% per month.
Make it clear that you can stop working if you don’t receive payment.
One of the most frustrating things for any service provider is having to continue to work even though you’re not getting paid!
Make it clear in your contract that if payment is late within XX number of days, you can stop working until you receive your payment. If you have lots of leverage and it takes a lot of time and effort to stop and start your work, you can even impose a “reinstatement fee” to get things back up and running again.
If you create any work product or deliverables, make it clear that no interest or rights to the work product are transferred until you are paid.
If you are hired to produce any work product or deliverables, you can use that to your advantage if the Client does not pay you.
In most contracts, the service provider or contractor gives up all intellectual property rights that they develop for the Client (think: copyrights, patents, trademarks and trade secrets). You can write in your contract that none of those rights will go to the Client until you get paid.
Add that if you have to send the Client’s account to collections, they’ll have to pay for any lawyer or collections fees.
Sometimes things get really bad and you have to take extra measures to get paid. That can mean either hiring a lawyer or sending the account to a collections agency. Both situations will undoubtedly cost you money. You can add in your contract that the Client will be responsible for these costs in addition to what they owe you for the work and any late fees.
Once you have these in your contract, how do you make them work for you?
When you face non-payment or late payment, you might only need to gently highlight these sections in your contract to the Client to remind them of their responsibilities. If the Client still doesn’t pay, your contract will serve as a shield and a sword if you decide to take them to court or to collections.
In summary, protection against non-payment and late payment starts with your written contract. Putting these protections in your contract allows you to go back to them at any point to either remind the client or if things get bad, prove your case in court!
Disclaimer: This article is for informational and educational purposes only, it is not legal advice. It does not create an attorney-client relationship between you and Lawgood, its founders, or the author. If you need legal advice, you should hire a lawyer.