How to guarantee payment when working as a sole proprietor?
Thread poster: Simon Klys

Simon Klys
Germany
Local time: 04:15
Norwegian to English
+ ...
Jul 20, 2016

Hi,

I am currently setting up a website with the aim of securing more direct clients in the near future. I was wondering if anyone had any ideas on how to guarantee payment or whether upfront payments are a credible option. As a sole proprietor I have limited legal/financial clout to chase payments and therefore feel I would be relying solely on the good will of the client.

Any ideas on the following would be much appreciated:

1. 100% upfront payment (does anyone have experience of customers actually accepting this?)
2. 50% upfront payment (is this a credible approach?)
3. Delivering an adapted text eg. half of text blacked out to show text is complete but full text to be delivered when payment is received (again, is this a reasonable approach or would it put off customers?).

I feel if the appropriate background checks are done on the customer and the work is of a high standard, then there should be few issues with payments. However, I just wanted to know if there was an alternative method that is generally accepted by customers that makes the payment procedure slightly more secure.

Thanks,

Simon


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Vladimir Pochinov  Identity Verified
Russian Federation
Local time: 05:15
Member (2002)
English to Russian
Just pay much attention to client screening/vetting Jul 20, 2016

I have never asked for an upfront payment throughout my 30-years freelance career. Yet, I have never had a non-payer issue as well. I am confident that this is a direct result of my being very choosey as to the clients I am willing to work for.

[Edited at 2016-07-20 08:37 GMT]


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Sheila Wilson  Identity Verified
Spain
Local time: 03:15
Member (2007)
English
+ ...
I imagine you're referring to B2B transactions? Jul 20, 2016

For B2C, I normally ask for something in advance as private individuals are harder to evaluate, more difficult to track down, and more amenable to paying before delivery. It's 100% for small jobs, one hour's work for larger ones, maybe more. If I forget, then I sometimes send the file as a scanned pdf with a watermark, with the editable file available on proof of payment. But that only applies to the very first job I do for them; thereafter they have 30 days but generally pay on receipt..

For B2B, I only ever ask for partial advance payment for very large jobs. But that's true of any very large job and doesn't mean that I don't trust them. I just need to keep income flowing in so I can eat! If I don't trust a business client, I refuse the job, or insist on payment for a first small job before I take on more risk. I rarely accept a large job from an untested client, and certainly not one that's urgent. I see 30 days as a perfectly normal payment term for a business client. They have your invoice; they know they have a requirement to pay. I have a policy of being very hot about late payment though. I'll let things slide a bit if it's a small amount from a regular client. But a new one gets a first polite reminder on payment date plus two days, and I escalate from there.

I've only had to sue once, successfully of course, in 20 years, although I have lost a total of €800 to bankruptcies. I've had my fair share of late-paying clients of course but I'm happy to say they all pay on time now, and mostly within 10 days (fingers crossed for next month).

[Edited at 2016-07-20 11:23 GMT]


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 04:15
Member (2005)
English to Spanish
+ ...
Instinct Jul 20, 2016

As the colleague has suggested, you have to spend more time screening customers and developing a nose for fishy clients or plain crooks. Experience, and a handful of fails, will teach you to stay on the safe side.

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Kay-Viktor Stegemann
Germany
Local time: 04:15
Member (2016)
English to German
Trust and risk management Jul 20, 2016

Regarding your three ideas, I think that such a blatant display of distrust up front would be a bad start for every business relationship. I would (and do actually) do it differently. I trust anyone up front (if I have no reason to mistrust them from the start), but I manage my risks. That is, for a new client I am willing to risk, say, a half or a full hour of my working time, do the job and invoice it normally. If everything works out fine and I get my payment in time, I will continue to trust this client and risk more next time. And so on.

Of course, if a new client shows up out of thin air and asks for a big job to be done, I think it's perfectly okay to explain to the client that some sort of deposit/initial payment is called for. But even then you have to make sure that your explanations do not seem like a show of distrust. It's more like what Sheila said, as a small shop you cannot afford to work days and weeks on end without some cash coming in. That should be easy to explain to anyone. Even the construction firm next door asks for some up front payment if you order a house to be built.


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Ilze Klotina
Latvia
Local time: 05:15
Japanese to Latvian
+ ...
Upfront payments is the only 100% secure option Jul 20, 2016

This is a very difficult question, but after five years in business I can say for sure - an upfront payment is your only guarantee. It doesn't mean that you can't trust anyone, you just have to take care of your cash flow. Normally, a serious client will understand it and will agree to pay at least something in advance. However, if your client is a translation agency, especially a small one, they may have no option to make upfront payments. In such case you have to be very careful and check all available information about the company - their website, Google, Proz Blue Board, Facebook, anything. Accept the job only if you feel that they are reliable.

In case the client refuses to make an upfront payment with no obvious reason you can try to offer them a discount if they do. It often works.


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Dan Lucas  Identity Verified
United Kingdom
Local time: 03:15
Member (2014)
Japanese to English
Rule of law Jul 20, 2016

As a sole proprietor I have limited legal/financial clout to chase payments and therefore feel I would be relying solely on the good will of the client.

If you worry about this then one thing I would do is avoid dealing with clients who are resident in locations where you cannot easily use small claims procedures to chase money. In Europe (if that is where you are based) chasing payments in the small claims court simply shouldn't need much financial clout.

Dan


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José Henrique Lamensdorf  Identity Verified
Brazil
Local time: 01:15
English to Portuguese
+ ...
Set a credit limit and use the magic word, SHARE Jul 20, 2016

First, set a credit limit you'd be willing to "bet" on a new client. I set mine at BRL 500 (~USD 170 nowadays).

If the total job cost estimate is below that, and the client has no record of being a bad payer (e.g. on the Blue Board), I won't go through the hassle of securing a partial payment up front.

At this time, the client is about as sure of my timely and quality delivery as I am of their timely and proper payment.

If the total cost is above that, I'll tell them that I must SHARE the risk with them, considering that a number of people order a translation job and change their minds while the job is under way, or worse, finished. So I demand 50% payment up front, before I get started.

Anyone reasonable will immediately agree that it is FAIR to keep the risk levels on both sides balanced, and they'll will pay half immediately. Those who intended to get a translation for free will vanish.


If the job is under that limit, but the client (or the job content) seems particularly "fishy", I do the job, but then I replace each diacritic-free A-E-I-O characters with an asterisk on a COPY, and deliver that.

I tried it, and noticed that accents-and-cedillas-rich Portuguese leaves text that is visibly a translation of the source, however the hangman-work it requires is about as much as translating from scratch. If I did it with the U too, the text gets no longer so easily recognizable.

Apparently this works with English too. It's probably useless in Polish, where vowels are scarcely used.

After having delivered that "hangman" file, as soon as I get paid, I deliver the complete, clean translation.


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Nikki Scott-Despaigne  Identity Verified
Local time: 04:15
French to English
A few ideas Jul 22, 2016

In addition to all the previous comments with lots of sensible practical advice, I can only pretty much repeat what has already been said. Over time, I have learnt to be :

- clear on what my conditions and payment terms are
- clear on the consequences of not complying with those terms and conditions
- take action as announced when clients do fail to comply with those terms and conditions
- indicate and stick to one's own set procedure, with an increasing scale of action (phone call, reminder, recordered delivery reminder/final notice, debt collection action (sometimes not even necessary to use the services of a professional in small claims procedure)
- not take expensive risks with clients overseas where recovery of debts would simply not be cost-effective
- seek 30% upfront with new clients and/or big jobs (setting a limit above which that will be applied, according to my own criteria which I do not of course explain to the client; it's none of his business)

Adopting professional business practices is the best way to obtain professional behaviour from a client. There are times when it may not work as a client could be in difficulty and/or not even realize that a problem is looming in the background. Sometimes it's just a passing problem, but it may often announce more serious underlying difficulties. In such cases, weigh up the pros and cons, and don't hesitate to reduce the amount you are prepared to work for without being paid, opt for staged payments etc.

Being self-employed means you are always exposed to the problem of bad debts or non-payment. Certain practices can reduce the risk, but risk zero does not exist.


[Edited at 2016-07-22 10:59 GMT]


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Simon Klys
Germany
Local time: 04:15
Norwegian to English
+ ...
TOPIC STARTER
Thank you! Jul 22, 2016

Hi,

I just wanted to write a short note to thank everyone for their input. A great range of ideas and approaches to mull over as I find my feet with direct clients.

Thanks again,

Simon


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Sheila Wilson  Identity Verified
Spain
Local time: 03:15
Member (2007)
English
+ ...
No guarantees Jul 22, 2016

Nikki Scott-Despaigne wrote:
Being self-employed means you are always exposed to the problem of bad debts or non-payment. Certain practices can reduce the risk, but risk zero does not exist.

I would certainly agree with that, and I would add this: Risk limitation and risk management are absolute essentials of running any freelance business (indeed, any business). If you're averse to risk and really must have guarantees, you should look for a salaried job.


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DZiW
Ukraine
English to Russian
+ ...
Escrow? Jul 24, 2016

An escrow is:

- a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties, or

- an account established by a broker for holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction;[1] or,

- a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums.
-Wiki
However, when considering an independent and licensed third party to protect both buyer and seller in a transaction, how one could trust the third party's straight dealing, yes?)


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