15 important takeaways from this talk:
00:01:26 Inevitably you will at some point have trouble getting paid by a client for work that you did for them. Common arguments include, but are not limited to:
- We ended up not using the work
- It’s really not what we wanted after all
- We got somebody internal to do it instead
- We cancelled the project
- We actually didn’t get the funding we thought we would
- We think we’ve already paid you enough
00:03:00 You likely went into business because you want the liberty of being able to pick and choose the projects and clients you want to work on and with.
But working for a company and running a company require two different skillsets. You must also have business experience – prospection, sales, accounting, customer services, etc. This stuff is a part of the job, and if you launch a business without these necessary skillsets, you’ll end up leaving a lot of money on the table.
00:04:49 All, or at least almost all, clients start the business relationship with you with the best of intentions. They worked their butts off to get a large enough budget to hire a company do to their work for them, and of all the choices that they could have gone with to meet their needs, they chose you. …but things do go wrong; things that you weren’t expecting – the market changes, the person who hired you leaves, somebody has a bad mood day, etc.
But things change, and when those things change you need to make sure that the relationship between you and the client is set in place in something like a contract.
00:05:34 When a client isn’t paying you, writing a ‘heart-wrenching letter’ or appealing to the client’s emotions is the worst and most unprofessional thing you can do because you will lose all credibility that you have with that client because the minute that you write a “heart-wrenching” letter you have given up any bit of leverage that you had in that relationship; you’ve shown them that you don’t believe that you have a leg to stand on other than playing upon guilt.
Entrepreneurs who must resort to heart-wrenching letters to get paid surely did not have a contract that irons out what to do in case of non-payment in place.
00:08:41 The fundamentals of a client-services contract are clear definitions and clear expectations which are all explicitly stated and agreed to by both parties. Everybody must understand what they’ve agreed to.
Absent a contract, a lawyer can write a mean letter or a persuasive phone call. If you want to avoid a lawsuit early in the process or if you have to file a lawsuit, you’ll need a written contract to back up your claim.
If a contract is not in place, you’ll have to spend a ton of time, energy and money trying to get paid for your work and probably will get paid a significant portion less. If it costs you $20,000 in attorney’s fees to collect $50,000, you’ll have lost a significant amount of money.
00:12:19 Build as many allies within the client company as you can, so in the event somebody refuses to pay, you have people working from within advocating for you.
00:12:54 It is possible that the client’s goals and objectives change as the project progresses. In this case you’ll want a contract that outlines that any deviation from the agreed terms is either an added charge or the contract ends, client pays for the work done so far, and a new contract is negotiated.
In the end, the client hired you for your presentation pitch and the scope of work that they outlined for you, so if you want to change it, you need to negotiate a new contract or amend the scope of work.
00:13:40 Walk away from any potential who prefers to say “You can trust us” for a business deal rather than having it formally written down. You cannot start a relationship with “You can trust us;” especially if it is concerning something crucial like payment terms because from that point on you’ll have to agree to additional just as onerous things during the project.
00:15:22 Treat the client bringing in another designer or consultant to work with you as a fireable offense. Why? Because again, you were hired to solve a problem and the client hired you for your presentation pitch and the scope of work that they outlined for you. The clients brining in a 3rd party now puts you in competition for the client’s time and you new have to compete with that person; that is not what the client originally hired you to do, and that is not what you originally agreed to.
You can fire a client as much as they can fire you. Just make sure your grounds for firing the client are outlined in the client-services contract. The reason you’re firing your client needs to be solid and in writing, and the client needs to be very aware that your firing them was coming – i.e. several emails explaining how the client is not fulfilling their part of the contract.
Firing your client should be the last thing you resort to, but when you must, do it quickly, clearly, and as kindly and respectably as possible. Recall that this is a client who worked their butts off to get the budget, and chose to hire you out of all their other options. Also, your reputation as a professional will spread to other businesses.
00:16:24 You’re at a point where you need a lawyer when you decide to go from being an amature to a professional. Good lawyers actually make you money. Good lawyers get your contracts to such a point that you no longer have to worry about the business and can focus on the creative aspect of your job – the reason you became an entrepreneur in the first place. What you pay the lawyer is but a pittance of the amount of money you would have lost had you have done the work without a formal contract.
00:17:51 Discussing money is usually uncomfortable both for you and for your client, a lawyer’s job is to take that responsible while making the both parties feel comfortable talking about it so that it doesn’t become a point of contention between the parties.
Most decent lawyers will tell you up front how much you may expect to pay to handle a particular situation. Most attorneys will even meet with you to answer your questions without charging you.
As a professional, you are trying to convince someone that you are the right person to give their money to in exchange for your services. If they ask a question about money, and the first thing out of your mouth is “Umm…,” you just lost $10,000 as well as your respectability. If you know how much something costs, stand up confidently and tell them. If you don’t know how much something costs, tell them you don’t know but that you will get back to them ASAP with the amount. The important thing is to sound like you know what you’re talking about, even when you don’t, because you can always find out later.
A common payment plan may be to divide the project into phases, with the agreed amount of money for each phase to be paid at upon completion of the phase before and before the next phase begins.
30-,60-, 90-day late fee ‘penalties’ should be outlined in advance, and at a certain amount of days late the contract could be considered terminated and a kill fee is paid by the client. Then, if you have to sue the client for the money, you include your attorney’s fees.
[EDITOR’S NOTE: In his book Win Without Pitching, Blair Enns advises that you “Address issues of money early. Those who don’t talk about money, don’t make it.”
On a side note, for a really good book on how to talk about things you aren’t familiar with, read How To Talk About Books You Haven’t Read by Pierre Bayard]
Clients may hand you contracts which haven’t been updated in +20 years or copy/pasted from template contracts found on the internet, and so don’t fit in today’s business environment. Clients may also hand you lawyer-prepared contracts that meet every single client need.
The process of negotiation is what makes agreements fair, therefore contracts protect both parties. Anything situation that arises during the process should be stipulated in the contract. Letting the client get their way, or signing contracts blindly will mean you are meeting all of the needs of the client without addressing your needs as a professional businessman/businesswoman.
Anticipate negotiation, but don’t back down on important stuff. Important terms you may refuse to back down on:
- Intellectual Property (IP) transfers on full payment: This is the most leverage you can have on a project – the work that you have done is yours until the client has paid you in full for it. If they use that work before you have been paid, you can sue them. IP contractual writing can be difficult to understand, and clients will want all work you do for them to become the client’s immediately upon your signing the contract. Perhaps the easiest way to manage this in your contract is to include the sentence “Upon full payment for the services…” at the beginning of the IP section of your contract.
- Termination (kill fee): the amount that your client is going to have to pay you over and above the work you have already received in order to terminate your contract without a good fireable reason – which should also be outlined in the contract. This protects you because you’ll have invested a lot of time working on their project, and you’ll have had to turn away other clients you could have worked with.
- Liability: if something goes wrong with the project, who’s to blame and consequences? Your contract will include representations of warranty and quality that you make about the services you will provide and that you are not infringing upon anybody else’s copyright. For example, if you create a sales website for a company with online sales of $10,000 a month, and then two months later their website crashes for 2 weeks, will you be liable for the lost sales?
00:19:36 Don’t start work without a contract. You’ll have lost any leverage that you had beforehand.
00:24:30 People hire lawyers to protect them, therefore lawyers talk to lawyers. If your client informs you that they have legal on the phone, wrap up your conversation and don’t call them back until you have a lawyer as well, otherwise you may become nervously intimidated into agreeing to and saying things which could cost you the contract.
00:37:47 Be careful of what you put online and comments you make about clients and/or other people, because it may come back to hurt you, both in your reputation as a professional and if a client’s lawyer finds your comments on social media.
As a rule, your relationship with your client is sacred and you should never put on social media anything that would violate that sacred relationship.
To summarize, your contract should:
- Was looked over by your lawyer
- Protects both you and your client
- Is negotiated to ensure fair terms
- Has clear definitions and clear expectations of the scope of work outlined for the project which are all explicitly stated and agreed to by both parties. Any deviations – amendments to the scope of work from the agreed terms is either an added charge or the contract ends, client pays for the work done so far, and a new contract is negotiated.
- Respects your non-negotiable terms and conditions which you refuse to give up.
- Has clear explanations for the grounds on which both parties can end the contract before the project is finished.
- Includes attorney’s fees should you have to take the client to court.
- Has been agreed to and signed before you start working for the client
- Is accompanies with allies within your client’s business to advocate for you in the event problems arise