Reflections on potential insolvency
Thread poster: Jacques DP

Jacques DP  Identity Verified
Switzerland
Local time: 11:56
Member (2003)
English to French
Dec 1, 2015

Hi there,

Like many here, I sometimes face agencies who find ways to delay payments, and depending on how much they owe me I become a bit nervous and at least wonder if I should keep accepting work from them until the amount owed gets smaller.

My question here is for the more experienced in how companies work. I'm wondering if the fact that some agency is owned by a large company, itself owned by a huge group, should be considered as reassuring.

My understanding is that parent companies don't have to pay their daughter company's invoices, but I am reasoning that it would hurt their reputation somewhat to have a daughter company default with unpaid invoices. To protect their reputation, they would rather pay the invoices and possibly close the daughter company if it's not profitable.

Is that a reasonable assumption? Thanks.


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Joakim Braun  Identity Verified
Sweden
Local time: 11:56
German to Swedish
+ ...
No Dec 1, 2015

Jacques DP wrote:

Is that a reasonable assumption?


Depends very much on the corporate setup.

But in principle, I'd say no. Who gives a damn about the reasons for someone's subsidiary folding? There are translators a-plenty out there, and 98% of them, including me, wouldn't bother to do a basic credit check on a prospective customer. And certainly we don't try to research how the parent company's other investments panned out over the years. Nor would the outsourcers at the other end of the chain.

Subsidiaries are packaged into individual LLC:s in order to let them default without affecting the parent company.

And if a huge group is the parent owner, why would they care what small fry customers and suppliers think about some remote subsidiary's default?


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 11:56
Member (2005)
English to Spanish
+ ...
Not at all Dec 1, 2015

Jacques DP wrote:
My understanding is that parent companies don't have to pay their daughter company's invoices, but I am reasoning that it would hurt their reputation somewhat to have a daughter company default with unpaid invoices. To protect their reputation, they would rather pay the invoices and possibly close the daughter company if it's not profitable.

A parent company can indeed inject funds by means of more capital, but most frequently, they let the troubled company fall into insolvency and avoid gangrene going up the leg.

If your customer is an agency that belongs to a larger group, unless the group is doing extremely well do not count on a rescue and limit your credit to the agency, so that you are not in trouble if things get worse... Use the free time to find more customers or put your online presence up to date.


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xxxAdrian MM.
Local time: 11:56
French to English
+ ...
No get-at the parent, unless a guarantee given Dec 2, 2015

I agree with Joakim & Tomás.

There are many law reports from many countries where the parent - as a separate entity - has been relieved of the corporate debts of the subsidiary ('daughter').

The situation is more complicated in many countries if there has been wrongdoing, like wrongful or fraudulent trading of the subsidiary committed through its officers and directors who are also on the parent's Board of Directors. Then the court might order them to cough up (FR: 'action en comblement de passif').

Unless secured, a translator's or interpreter's claims for payment rank as ordinary, unsecured debts and come down the bottom of the pile, namely the queue of creditors on an insolvency.

So there is no harm asking the directors of the parent company or senior members of a partnership (DE: KG GmbH & Co Ltd) to give you a personal guarantee if the size of the brief is worth it and no money is forthcoming upfront.

Generally, I have found the reaction to such a call 'unfavourable' and been told 'where to go'. But if the subsidiary is a shell and the parent is rolling in it, then it may be worth giving it a go, preferably after consulting a lawyer.

[Edited at 2015-12-02 00:45 GMT]


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Sheila Wilson  Identity Verified
Spain
Local time: 10:56
Member (2007)
English
+ ...
Dangerous practice Dec 2, 2015

Jacques DP wrote:
wonder if I should keep accepting work from them until the amount owed gets smaller.

The answer to that part of your post is an equally resounding NO.

You're right to get nervous. You are continuing to supply a company that isn't paying for those supplies? What are they doing with those supplies, aka in this case translations? They're selling them to their clients, of course! So where's the money for YOUR work going, if it isn't coming to you?

Many translators are probably doing the same thing. And so the bubble grows - the company's debts to freelancers grow and grow. Maybe they are mismanaging the company, or their parent company is finding ways to channel off all those client payments. Eventually, bigger creditors will take legal action and that bubble will burst. You then stand to lose every last cent - you've worked for free.

My own personal practice (I don't have "rules" for my business but I have to have a good reason to divert from normal practice):
- new client: payment to be received on time, and most certainly before a second job is undertaken.
- newish client or one with past problems: debt followed very closely (e.g. frequent reminders from due date +2 days). Maybe one small job accepted but the next will be dependent on payment.
- very regular and well paying clients: their first unpaid invoice gets ignored. Only when the next month's invoice is delivered do I add a polite reminder that there's one outstanding. That has always resulted in immediate payment of both invoices and profuse apologies. If it didn't, they'd have to be demoted. I'll temporarily double my risk for a previously really good client, but that's the limit.

In my book NO client should keep getting my work for nothing.


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Jacques DP  Identity Verified
Switzerland
Local time: 11:56
Member (2003)
English to French
TOPIC STARTER
I see, thanks Dec 2, 2015

Thanks Joakim, Tomás, Adrian for your answers.

I didn't expect legal responsibility of parent companies (and by the way wrongdoings are unlikely in that case), but I thought maybe they would make sure creditors are paid for a matter of reputation. In fact if some group made it a policy (officially stated, or just as an observable historical fact) to always make sure creditors of an owned company are paid even when such company needs to fold, then the public would trust any company which is bought by the group, which might benefit the group. But I seem to understand that in reality this is not the way it works, and that ultimate owners of companies are irrelevant to our relationships with them.


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Jacques DP  Identity Verified
Switzerland
Local time: 11:56
Member (2003)
English to French
TOPIC STARTER
Yes Dec 2, 2015

Sheila,

You assume I keep doing work even though they don't pay me. That's not exactly the situation. The situation is that I did a lot of work and so they owe me a lot of money, and I'm wondering if I should wait for this debt to clear before doing more work. Mostly the reason why the debt has not cleared yet is because of normal payment terms, but it's also partly because they delayed the invoicing process. I didn't plan to explain nor discuss this in detail, I was just interested in the parent company issue. I'm experienced and I usually know what I'm doing business-wise. In fact all invoices I ever issued were paid. Thanks.


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Sheila Wilson  Identity Verified
Spain
Local time: 10:56
Member (2007)
English
+ ...
So it isn't a case of overdue sums; just of as-yet-unpaid sums. Dec 2, 2015

Jacques DP wrote:
The situation is that I did a lot of work and so they owe me a lot of money, and I'm wondering if I should wait for this debt to clear before doing more work. Mostly the reason why the debt has not cleared yet is because of normal payment terms, but it's also partly because they delayed the invoicing process.

I understand now, Jacques. But I think there certainly do have to be limits, regardless of who or what the client is. Our income as freelancers is too restricted by the clock for us to be able to take a big loss. If one major client ends up not paying for any reason whatsoever, we're left with very little income coming in and no food on the table. The risk soon becomes quite out of proportion to the risk that a freelancer has to accept as a matter of course.

An unacceptable level of risk can arise in one of two ways (at least):

1. A previously good client, who has therefore become your N°1 client, starts prevaricating, delaying payment so that there are larger and larger amounts outstanding. The proportion of time you spend on their work must therefore be limited. They need to be told they have to clear their debt before you do more for them.

2. You may not have a very large client base and so spend a very large proportion of your time on one client who is happy to provide large volumes, and pays regularly. You're happy as things seem to be going well. But you're actually risking your own livelihood by having all your eggs in one basket. If that client fails, you fail with him/her. You need to go out and actively hunt down some more clients to spread the load more evenly.

IMHO, you really need to set a limit for that client, Jacques, even if it isn't something you do routinely. Personally, I start to get edgy when the amount a regular, timely paying client owes me goes into four figures (euros). It happens, but I do start to get a bit fidgety. I get edgy far earlier if the client hasn't earned much trust. On the other hand, I sometimes take quite large risks if I feel it appropriate (such as my present €800-outstanding first job from a private individual in Germany with a solid online presence) which shows that my risk limit is personal to me.

Can you afford to lose the totality of what this one client owes you, Jacques?


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Soonthon LUPKITARO(Ph.D.)  Identity Verified
Thailand
Local time: 16:56
Member (2004)
English to Thai
+ ...
In case of an old film making comppany Dec 4, 2015

Sheila Wilson wrote:

Jacques DP wrote:
The situation is that I did a lot of work and so they owe me a lot of money, and I'm wondering if I should wait for this debt to clear before doing more work. Mostly the reason why the debt has not cleared yet is because of normal payment terms, but it's also partly because they delayed the invoicing process.

I understand now, Jacques. But I think there certainly do have to be limits, regardless of who or what the client is. Our income as freelancers is too restricted by the clock for us to be able to take a big loss. If one major client ends up not paying for any reason whatsoever, we're left with very little income coming in and no food on the table. The risk soon becomes quite out of proportion to the risk that a freelancer has to accept as a matter of course.


Before an American film company got insolvency, I was declined to get translation payment even I moved on in a number of ways. It is "red flag" on bankruptcy even on very good reputation firm. Debts to me was so small and the bankruptcy lawyers ignored my claims of USD 2500.
In contrast, a Singaporean bankrupted company, as well as an Argentine firm, paid me 100% of full amounts by waiting around 6 months, USD 7250 and USD 5885, respectively. Business culture may affect how to react with creditors, I think.

Soonthon L.


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Jacques DP  Identity Verified
Switzerland
Local time: 11:56
Member (2003)
English to French
TOPIC STARTER
Update Dec 4, 2015

I got a a request for an open items statement from the parent company, which is conducting a financial audit on itself and its subsidiaries (first time I receive such a request). I'm not sure if I should be happy to see the parent company getting involved (an interesting development in the light of this thread), or worried that this might be a confirmation that there are some actual problems with the agency.

Also, I indeed told the agency I would only accept new jobs when the debt is cleared (we're talking five figures in that case). In general they appreciate my service and try to solve any problem quickly so that collaboration is not interrupted. We'll see how it turns out, but I am not too worried at this point.


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Sheila Wilson  Identity Verified
Spain
Local time: 10:56
Member (2007)
English
+ ...
Why on earth would they do that? Dec 4, 2015

Jacques DP wrote:
I got a a request for an open items statement from the parent company, which is conducting a financial audit on itself and its subsidiaries (first time I receive such a request).

Surely that will undermine confidence in the company among its suppliers. And surely, any company should be able to produce its own snapshot without going out to its suppliers. But maybe it's a common practice that I haven't come across.
We'll see how it turns out, but I am not too worried at this point.

Personally, I'd by very, very worried and I'd be thinking of engaging a debt recovery company to go in as soon as possible once substantial sums become overdue (if indeed they do). Keeping my fingers crossed for you as it seems there's a lot of money involved.


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