Past due: Freelancers, small businesses struggle to get paid

By Joyce M. Rosenberg
AP Business Writer

NEW YORK (AP) - For many freelancers and owners of small businesses, signing up clients and completing projects is just one part of the work. Trying to get paid can be almost as time-consuming.

Sandy Sloane needed 11 months of persistence before one client paid in full for her publicity and event-planning work. The client was having cash flow problems, but said he was paying other vendors. He put off paying Sloane although their $4,000 contract stipulated he would pay within 30 days.

"I had to threaten legal action before he started making payments, since repeated invoices and late fees did nothing," Sloane says.

Getting paid can be an issue for a business of any size. But delays can cause particular difficulties for freelancers like writers and graphic designers or small business owners like building contractors and technology consultants who don't have a steady cash flow. Slow payers can make it hard for freelancers to keep up with their own bills. And it's not just the money - it's the frustration of multiple invoices, emails and phone calls.

"I spent way too much time writing to him and sending repeated invoices, at least one per month," says Sloane, who's based in Rochester, New York. She has since changed her policy: She gets half the invoiced amount up front, 25 percent on an agreed-upon date and the rest within 30 days of the project being done.

Since the Great Recession began, many companies looking to cut costs and gain flexibility have used freelancers rather than regular employees for short- or long-term work. And some companies, including ride-hailing services like Uber and Lyft, are based on using independent contractors.

Some freelancers are paid regularly, including Uber and Lyft drivers. Their weekly pay is based on their fare totals, according to the companies' websites. And the ride services keep track of fares, so drivers don't need to send the company invoices.

But most freelancers need to invoice customers and wait. Small business customers may be short of cash themselves or may make other bills the priority. Big corporations stipulate the payment policy when they hire freelancers or contract with a small business owner, and may take several months to pay.

Freelancers often don't think about the intricacies of getting paid when they're starting out. It's often not until something goes wrong that they realize they need a formal policy.

Photographer and videographer Tom Hoebbel began including payment terms in his contracts after being burned several times. He requires payment within 30 days and warns clients they face a 1.5 percent fee if they're late. Hoebbel, who lives in Brooktondale, New York, has to be tough - he told one of his favorite clients, a local arts organization, that he won't work with it anymore.

"They told me, 'we don't have the money,'" Hoebbel says. "It's understandable for a nonprofit arts company, but I need the checks to come in so I can stay in business, too."

Slow or non-payers can wreak havoc with Hoebbel's finances: "I rely on payments from clients to pay my vendors and hopefully a bit of a salary for myself. ... In lean months, this can be a real problem," he says.

When Jaimyn Chang began requiring clients to give him a credit card number last year, it changed his business dramatically. Chang works in search engine optimization, which helps individuals and businesses get a high ranking in internet searches and thus be found quickly. But Chang, whose Boomin Agency is located in Raleigh, North Carolina, found that customers that didn't understand the need for SEO weren't likely to pay.

"Those who are tight on cash and have limited knowledge about the services they're asking me to provide are usually the ones who find ways to not pay," Chang says.

Clients now must provide a credit card number before Chang does any work. "It weeded out a lot of clients that were trying to scam me from the get-go," he says.

Some new freelancers are so eager for work they're willing to defer payment until the project is completed. That can be an invitation to not getting paid. Another common problem is not being prepared for the what-ifs, says James Hammerschmidt, an attorney with Paley Rothman in Bethesda, Maryland. For example, if a customer requests many changes to a project, a freelancer might have to do more work than expected for a set price. Hammerschmidt says to create a contract that's very specific.

Some customers won't pay if they're not happy with the finished product, says Teris Pantazes, who operates EFynch, a website that helps homeowners find plumbers, electricians, and other home improvement specialists. He suggests freelancers make sure they've told the customer what to expect.

"You really have to sit down and explain your service," says Pantazes, whose website covers Maryland and Washington, D.C. Having a partial payment made up front, or put in an escrow account, will help cut a freelancer's losses, he says.

Many freelancers tailor their payment policies, giving better terms to the best clients.

"It's definitely a judgment call and I think the judgment is different for different types of businesses and personalities. The relationship (with your customer) is so important," says Lisa Merriam, a marketing consultant based in New York. She recalls a client who ran into financial trouble. Merriam negotiated a new deal and eventually was repaid in full.

Many of Merriam's clients are on a payment schedule like the one Sloane uses. Other clients for whom she does ongoing work pay a monthly retainer; if the work costs more than the retainer, there's a surcharge. And, she says, ask for references and check credit ratings.

"Do your due diligence on a customer before you enter a deal," is her advice.

Published: Thu, Nov 16, 2017