Episode 273 — When Clients Refuse to Pay

 

Episode 273 — When Clients Refuse to Pay

Hello, everyone! This is Allan McKay.

Welcome to Episode 273! I want to talk about what to do if you aren’t getting paid by your client. I want to share as many insights as I can. I’m excited for this one! This is a question I get so often, but I don’t often response because the follow-up questions from me would be:

  • What did you do in the beginning?
  • What did you do during the project?
  • What did you communicate with the client?

There are so many variables to it. I wanted to talk about it once and for all about how to get paid by your client and avoid getting screwed over; and what to do if you do get screwed over. Artists often tell the sob story of “Art doesn’t pay and you get screwed over”. But a lot of the time, you need to do things yourself from the beginning. But it doesn’t have to do with just art. It’s true for any industry. So level up and get your business hat on!

I also reference Seth Polansky’s Episode in this as well: www.allanmckay.com/235. Check it out! While you’re on the show notes page, please take a second to share this Podcast. You’re also welcome to leave a review on iTunes.

Let’s dive in!

 

HIGHLIGHTS

[05:29] Research Your Potential Clients
[07:23] Bring Up Money Early
[10:00] Have it All in Writing
[16:31] Set Up Milestone Payments
[26:08] What to Do if You Still Haven’t Gotten Paid
[31:44] Insights from IP Lawyer Seth Polansky (www.allanmckay.com/235)
[35:51] On suing Clients in Different States or Different Countries
[38:22] The Downside of Suing Clients
[42:50] A Recap

 

FIRST THINGS FIRST:

[43:36] One of the biggest problems we face as artists is figuring out how much we’re worth. I’ve put together a website. Check it out: www.VFXRates.com! This is a chance for you to put in your level of experience, your discipline, your location — and it will give you an accurate idea what you and everyone else in your discipline should be charging. Check it out: www.VFXRates.com!

 

WHEN CLIENTS REFUSE TO PAY

[05:29] So: How do you get paid by your client and what do you do if they refuse to pay? I want to dive into a few key subjects here, one of them is about protecting yourself ahead of time. Do your due diligence! Don’t just take on any job and expect that they will all work out great. I tend to interview my clients more than interview me because I want to get an idea on how chaotic the project is going to be and how organized they are, how shifty they might be. Do your research even if it means going on your LinkedIn and seeing what connections you might have. Maybe you have a friend who’s worked for that client and that might be a great indicator to ask them. If they tell you it took them 6 months to get paid, that’s a red flag!

[06:26] In other words, ask around and find out what that client is like in the first place. It’s great to do this anyway to find out what they’re like to work with or what commonalities you might have. If you find out that there are friends that have worked with them, you can communicate that to the client. Having rapport is good in general. But more importantly, it’s good to do your research. Also, trust your gut. If your senses are tingling, ask some questions. If they’re dodging your questions — especially when it comes to money — it’s an indicator that maybe you should trust your instincts about this client.

 

BRINGING UP MONEY EARLY ON

[07:24] One important thing I have to mention: Bring up money early one into the conversation. I feel that a lot of us are afraid to do this: We’re afraid to lose the client or that they will be upset with us. Because of that, we don’t bring up money. You think that you can bring it up once you start the work, you’ll bring it up then. You start to do the work and towards the end you think you can just send them an invoice. This is a recipe for disaster and it’s one that is very common! I’ve been there and have my friends. If you don’t bring up money early on, it give room to misunderstandings. And it’s not that they’re out to screw you over. You never brought it up! Later they can say, “I thought you were doing thing for exposure.” Or, they bring up money and they’re thinking you were going to do the job for $100 and you were thinking $1,000. Either way, that breaks down the communication and it breaks down the relationship because at that point there is bad blood. And a great relationship ends up going down the drain.

[08:42] In other cases, they may actually want to screw up but that’s a whole other think. You have to keep in mind that this is a business; and if they’re making money — you should be making money as well. You should be brining up the conditions of your work ahead of time so that way you’re all on board; and you can focus on the work and building the best relationship you can with that client. [09:10] Bring up money and bring up all the details ahead of time. No one likes to talk about money! The client isn’t thinking about squashing you. They’re just uncomfortable as well. But it’s important for you to move forward and there are no misunderstandings. The worst thing is when you start building resentment or getting jaded. There are so many things that can happen if you don’t say right away, “Hey, what’s the budget for this project?” or “How much money do you have in mind for this?” How ever you want to bring this up.

 

HAVING IT ALL IN WRITING

[10:00] Another key thing is to have it all in writing. Make sure that you have it down in a contract. If you can’t do that, have your email records as the breadcrumb trail between you and the client. In other words, make sure everything is documented somewhere. A contract is binding but if you haven’t gone through those steps, email is something you can show your lawyer. Phone calls are illegal without their permission. You can’t record a conversation with them without that. But you can do it all over email. I still think communication over the phone is crystal clear; but what I tend to do is to follow that up with an email afterwards. By being on the phone, you get a better understanding how shifty they might be; but hopefully, these are all positive conversations. But after finish the phone call, send them an email saying:

“I’m really excited about this project! Just to confirm: We’re going to start on this date and deliver on this date. As I mentioned, this will paid $5,000. Fifty percent up front and 50% upon delivery. If that sounds good to you, shoot me back a response and let me know! Looking forward to your response!”

[11:52] I’m looking emphasis on “Looking forward to your response” because I’m letting them know they need to respond before I start the work. You can also follow up if they don’t respond. The importance of that is to reiterate the details discussed over the phone — over email and getting them to agree. If they don’t reply, it doesn’t hold up. I still think doing a contract is the best thing to do. Once you have a standardized one, you can recycle it. But I don’t recommend downloading one off the internet because they aren’t up to par. It’s best to hire a lawyer to draft a contract. It’s worth it in the long run. Either way, get the client to confirm everything.

[13:12] The other thing is locking down payment details. Don’t assume that everything will go smoothly. I tend to work on higher profile projects, so it’s not uncommon to have $500K, $700K contracts, or some over one million dollars. It’s cool to have those budgets behind them! But that also means that I have other expenses and employees behind me, so I don’t want to get screwed. I have to make sure that I’m paying my people first and I’m stuck in the middle not being paid by my client. A very big Super Bowl Commercial was at a quarter of a million mark. We discussed all the milestone payments: 25% up front, 25% halfway through and 50% upon delivery. I agreed on dates for the first two, but the last one was “upon delivery”. I had to follow up several times. The client told me they were waiting to get paid by their client, which was Sony. Later on, they came back with Net 90. It ended up being 4-5 months to be paid. I’d burned out they payments to get some new computers. Suddenly I was left with no money in the bank account. I had to borrow money from my friends just to go on a date with my now wife, when I first met her. It was an embarrassing situation. But the lesson was that every payment date had to be set up and so do the repercussions if those dates aren’t met. Assume nothing and don’t be afraid to talk about the details in the beginning!

 

SETTING UP MILESTONE PAYMENTS

[16:31] Doing milestone payments is pretty common, whatever the split you decide on. For quicker turnaround projects, I’ve been guilty of saying, “I’ll just invoice you in the end”. The problem is when it is $50K or $100K, it’s a lot harder for them to scratch together the funds. One story comes to mind: My friend is a producer for Newline Cinema and they produced the first Lord of the Rings. They had an employee at Weta who never invoiced throughout the project. When he finally invoiced at the very end, it was for hundreds of thousands of dollars. For them, it was a huge accounting because they thought they were in a good position. Keep in mind that you can do a payment plan throughout the project. That also means, that if you do get screwed, it’s over $2K, not $10K. You’re lessening the blow but also encouraging them to pay you. It’s more about making it easier for everybody. These are the ways to set yourself up for success.

[19:02] If a client is ever late on making a payment, you don’t need to freak out. You can just casually say, “Hey, I need it by this Friday to continue with the work. This is just a friendly reminder.” I’m not going to be standoffish in the beginning. These messages may escalate throughout the project. If you don’t hear from them, you can be a bit more sharp in your next message. I’ve only once had to stop working on something, but only for an hour. I hadn’t been paid on a few invoices. Typically, they aren’t out to screw you over. They may not managing things well and they may have put you on a lower priority. Keep that in mind! They aren’t the enemy but don’t be a pushover either. This is a business and it needs to be taken seriously.

[21:03] Discuss money upfront: You will deliver on the final files upon final payment; or that you can deliver the content watermarked and you’ll remove the watermark once you’ve received final payment. There are many ways to protect yourself and you don’t need to go to the most extreme. But figure out what you’re comfortable with. That way they know they have what they need. They just need to deliver the payment to get the final version of the content, whether it’s raw files or non-watermarked content. Don’t assume you’re going to get screwed over from day one, but use common sense to be protected.

[22:35] If you are doing milestone payments, at least they’re a lower blow. If they’ve been paying you along the way, owning you 25% is less damaging at the end than owing you the 100% of the payment. Keep that in mind! At least, you’re less likely to get screwed over. I did a project at the age of 21. I was owed $1,200 at the end. They ended up promising me for over a year. It was me getting the runaround. I was naive and patient about it: I emailed them saying, “I’ll let you keep the money if you just acknowledge that you’re stealing from me.” I never heard from them again until their receptionist called again, “We heard you’re back in town and we really need you on this new project. By the way, check your bank account. The owner paid you!” Naturally, I didn’t take the job! If it were more money, I would probably hired a lawyer. There is a lot you can do along the way before you get to that point. You can start to detect when things get shady and start taking appropriate actions.

[25:22] I only work with clients I get a good vibe from. But it is your fault if you feel something is wrong yet you still go work for them. You’re better off to hold off and make yourself available for someone else. It is a business. We all have expenses and it’s only fair to be paid!

 

WHAT TO DO IF YOU STILL HAVEN’T GOTTEN PAID

[26:08] If I don’t receive payment after all this, I will quickly send a reminder about the invoice, “I’m just following up on my last email since I haven’t received your response. I need confirmation you’ve received it. I need to hear back from you by the end of the day today.” By giving time constraints, you aren’t making threats. You’re setting up deadlines. At that point, you can escalate things. “I’m sure neither of us wants to be dealing with a lawsuit, so I need to hear back from you in the next 48 hours. Otherwise, further communication will be with my lawyer. Here is my number. Please call me ASAP.” If they do call, I wouldn’t have the conversation without getting their permission to record that phone call. At that point, you want to have that to have handy to give to your lawyer, but you cannot do that without their permission. If they aren’t cool with it, you can’t have the conversation. These are the ways you want to handle it: You’re being direct but you aren’t being difficult. You’ve done your end of the contract — they haven’t done theirs.

[28:21] There have been situations where a studio in LA wanted to hire me but their NY location owed me $100K. I had to tell them I wouldn’t work with them until the NY office paid me. These things can get resolved internally. That has happened a few times. Sometimes, that has worked well in the end. Sometimes a bit of chaos can work in your favor longterm. This one guy did some work for a studio in Sydney but they haven’t paid them. He then expressed interest to work for them full time. They were thrilled, but he mentioned that they owed him $50K. The owner paid him and the guy was quiet for a moment and then said, “F.U.!” Not all of us are in that high demand. But it does mean that there are ways to get paid because it’s in the best interest of this studio.

[31:44] A contract is so critical! In order to get paid, having a contract is the best way to go. That means that you have to get that one drafted. You can upload one from Legal Zoom or Rocket Lawyer. I’ve done a Podcast with Seth Polansky who is a Intellectual Property Lawyer (www.allanmckay.com/235) who specifically focuses on working with artists. He’s the man! He helped me out with a friend of mine who had a celebrity client. His Podcast is so valuable! I highly recommend checking it out. One of the things we talked about is setting up restrictions around payment:

  • Pay me by a certain deadline and
  • These are the repercussions if you don’t.

[33:16] One of the things we discussed was Net 30: an invoice needs to be paid within 30 days. If you didn’t set up repercussions around it, that Net 30 often gets ignored. This shouldn’t just be on your invoice, this should be listed in your contract that you need to have your invoices paid in 30 days and they aren’t, they will accumulate interest from the first day of missed payment. There will also be a late payment penalty. This is taking steps for when the situation escalates.

[34:34] The other thing to keep in mind are recovery costs: hiring a lawyer, chasing down the client, etc. You can then get the money back. You can’t just put that on your invoice. That’s not enough! Your invoice doesn’t mean anything. But you put it in your contract, you’re in your right.

[35:51] Seth Polansky mentioned one of his clients who did music for a tv commercials. He did the contract but he also retained ownership until he received final payment. Now that one little line meant that he had copyright over the commercial. Because the commercial went out everywhere (tv, radio), he was able to sue them for infringement of his copyrighted music. He got paid big time! The more you cover your butt, the more you’re protected. Suing companies in other countries is much harder because you’d have to hire lawyers in that countries and often the laws of your native country won’t hold up. When you’re dealing with international clients, things get complicated quickly. The situation is similar for suing a company in a different state: You will have to hire a lawyer in that state or fly over there to go through the process. Which is why you need to take this precautions from the beginning.

[38:22] The downside of suing people is that you become a liability as well. You will get a reputation for suing employers. If other companies were to hire you, would they want to hire you? That’s the downside of going through this. Your reputation may be tainted by standing up for yourself. [39:27] All you want to do is do your artwork. But we do need to realize that we’re also running a business and we need to take those steps; to make sure we’re protected and we’re taking seriously. I once had to hire a guy who had sued his employer before. He had dressed up as Hitler and marched around the studio in characters. When they asked him, “What are you doing?”, he said, “I’m just trying to fit in.” He later sued them for wrongful dismissal. The company had every right to fire him. His actions were inappropriate. For him to come onboard with me, I had to warn him to not pull that crap. There are people out there who sue for the wrong reasons! There will always going to be a taint to your reputation once you’ve sued someone.

 

TO RECAP:

[42:50] To recap everything really quickly:

  • The best way to avoid getting screwed over is to test the situation first. Screen your clients!
  • Communicate everything upfront — and get it in writing!
  • Get everyone to pay you incrementally.
  • Make sure everything is communicated over email and send a recap email after a phone call.
  • Figure out ways to protect your material until final payment (i.e. watermarking the files).
  • Protect yourself. Don’t assume the worst of your clients but also don’t get taken advantage of either!

 

I hope you enjoyed this Episode and got a lot from it. I had a lot of fun doing this one. I think this is such a valuable top. Please let me know what you thought or if there are other topics you’d like for me to tackle.

Thank you for sharing this Podcast around as well! While you’re on my website, feel free to contact me.

I’ll be back next week with Mike Janda and Tom Ross. They have so many insights, it’s a really valuable Episode. I love it! I will also be interviewing Director Mark Toia and many other cool guests.

Until next week —

Rock on!

 

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