Deadbeat customers

[webgeek]

This thread is a bit old but I did have a few things I wanted to add. In my business (custom software development - usually video games) we've been forced to demand a down payment on projects. In rare cases has this been a problem but most everyone is willing to pay 20-25% up front, even on million+ dollar contracts. Once someone has some skin in the game, they are better about paying the rest.

Additionally, enforce milestone payments if possible. For instance, if you are making multiple parts force them to pay another 25% after half the order is completed but DON'T turn the parts over to them. Just let them see via photograph, etc. This let's you walk away before they can burn you for the whole order if necessary.

Finally, if it's a big order, have some damages clauses in the contract. Basically, if they try and screw you and you take em to court, you want your contract to help you get all your fees covered and the like. These days, even a small business should be using a contract on orders. It protects you and the client in some cases. Ideally, your contract will also contain some indemnity clause so they can't sue you if you are late on the project though not all clients will sign it. There is a bit of a sticker shock if you have a 30 page contract for a thousand dollar order

Good luck!

Mike

[tobyaxis]

This thread is a bit old but I did have a few things I wanted to add. In my business (custom software development - usually video games) we've been forced to demand a down payment on projects. In rare cases has this been a problem but most everyone is willing to pay 20-25% up front, even on million+ dollar contracts. Once someone has some skin in the game, they are better about paying the rest.

Additionally, enforce milestone payments if possible. For instance, if you are making multiple parts force them to pay another 25% after half the order is completed but DON'T turn the parts over to them. Just let them see via photograph, etc. This let's you walk away before they can burn you for the whole order if necessary.

Finally, if it's a big order, have some damages clauses in the contract. Basically, if they try and screw you and you take em to court, you want your contract to help you get all your fees covered and the like. These days, even a small business should be using a contract on orders. It protects you and the client in some cases. Ideally, your contract will also contain some indemnity clause so they can't sue you if you are late on the project though not all clients will sign it. There is a bit of a sticker shock if you have a 30 page contract for a thousand dollar order

Good luck!

Mike

In manufacturing this is difficult to say the least. Your overhead on the work is far too great and forget about holding parts back because the customer will go elsewhere to get the rest and probably stiff that shop too.

Shops wish they could do this.

[webgeek]

Shops wish they could do this.

Sorry to hear that. I was hoping some of the same lessons we learned would translate to a small machine shop but it sounds like the might not.

When we first started and had no reputation or portfolio, we felt we couldn't ask for a down-payment. As we got more confidence, we learned that it was pretty easy and no one really minded except for people that were super cheap and those were people we didn't want to work with in the first place.

One thing that helped immensely is the CEO we hired. He is much more aggressive in negotiating contracts than my partners and I ever were. Ironically, it gets us more money for less work AND the customers seem happier. I can't explain how he does it, but having a real business guru helps more than I'd ever expected.

Is there a problem having a boiler-plate "work for hire" contract that you can use for orders? Basically someone agreeing to pay when the work is completed, an indemnity and confidentiality clause, a pair of out clauses for you and them, etc? In my experience, a contract keeps honest people honest and scares the crooks a bit too. Not to mention, if you have it on paper, the next step is easier.

Lawyers scare people and companies. If you get stiffed but have a contract you can have a lawyer write a rather threatening and scary letter to the person/company that you send via certified mail. This will cost less than $200 tops unless your law firm is ridiculously expensive. We've done this multiple times and it works wonders. The threat of legal action is highly effective when you are clearly in the right and have proof, IE a contract they breached. BTW: we've never actually had to pursue legal action. The threat alone has always been enough. Interestingly enough, this isn't a relationship destroyer you might think it is. Several companies we've done this with took it as a wake up call and are still our clients on later projects.

After the letter, the collections agency and a call to the BBB seems the best bet. We don't use agencies in our industry, not sure why. Probably has to do with the whole "non-material goods" or such. But I assume that having a contract will only make their job easier as well.

Good luck! We've never been burned too badly in the end with these steps but we've had a few low 5-digit losses from deadbeats in the early days. The worst ever was when the client filed chapter 11 as we were finishing up the project and basically gave us 10 cents for every dollar that they owed.

-- Mike