

Ask HN: Are Startups Exploiting Freelancers? - sbntn

As a freelancer I&#x27;ve had many small clients delay payments, it&#x27;s part and parcel. However, over the past few years I&#x27;ve been involved with a few startups and am now owed over $100K. Each startup led me on for far too long, and now it seems none have the ability to cover the costs owed. I&#x27;m stuck and at a massive loss.<p>Just wondering if anyone out there has a similar story?
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patio11
Once is chance, twice is coincidence, third time is enemy action ^H^H^H an
opportunity to improve your business practices.

1) You appear to have been working for startups with no money. There is a word
for devs who work for startups with no money. It is "technical cofounder." If
a startup does not have sufficient money in the bank to pay you, tell them
you're happy to continue the conversation after they have raised money.

2) Startups with money in the bank are frequently amenable to e.g. 25%
deposits for first-time clients. You can even offer them a trade: 25% deposit
means they get scheduling predictability, otherwise the engagement happens
subject to your availability, and -- since we're all businessmen here -- we're
all clear that in case of conflicting desires about scheduling the client
willing to pay a deposit wins.

3) Your computer just developed a really strange bug where elaborate excuses
in emails regarding payment cause it to shut down and not be able to boot
until your bank says the check cleared.

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jxf
I'm a little curious about how the bill got to $100k. Were the payments going
unmade for months while you continued to do work for them?

I usually asked for biweekly direct deposits when I was contracting with
startups, and I made sure to add that to my contract as a clause. If the money
stopped, so did the work. But I never had anyone pay very late, and if they
did it was quickly remedied with a phone call.

Now, as the cofounder of a startup ([http://uphex.com](http://uphex.com)) who
uses freelancers regularly, I make sure that my freelancer collaborators know
I'm serious about paying on time. I carefully lay out how and when we pay
invoices, and usually pay far in advance of when we need to, in order to build
up trust. To date, it's worked very well.

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rebelidealist
CONTRACTS...

even you don't have contract...THREATEN TO SUE THE SHIT OUT OF THEM. Emails
are proof. Tell them your uncle graduated from Harvard Law.

always take 50% deposit before you start.

i've been consulting for over 4 years. sometimes you need to take out the
hammer. Never be the victim, fight until you get your money back.

If all else fails blog about what happened with proof. Use their real names.
SEO the shit out of that blog post.

~~~
patio11
_SEO the shit out of that blog post._

This strategy will not redound in your favor with regards to securing mutually
fulfilling relationships with good prospects, because it screams a) I'm a
chump consultant, b) I will be difficult to work with, and c) there is a huge
downside risk of employing me if we run into utterly routine speedbumps.
(Freelancers may not perceive "not being paid in a timely fashion" as a
speedbump, but that is what it will read like to clients.)

~~~
rebelidealist
Letting the client fuck you over by not paying is being a chump consultant?

Would clients delay payment for their attorney? How are tech consultants any
different?

The demand for tech consultant is more than supply. You don't need any clients
that are scared of working with you because you call out another client for
not payment. There are plenty of work in the sea to put up with this.

~~~
napoleond
> Would clients delay payment for their attorney?

 _Yes, routinely!_ That's what Thomas and Patrick are getting at. For better
or worse (and trust me, I've felt the "worse" side of it lately+) companies
will, for a plethora of boring and stupid reasons, not always get their
payables out on time. It's completely normal. They're not trying to screw you.
It just happens. You can choose not to work with those companies, or to expend
your energy toward making sure your clients always pay you right away, but
that's a poor use of your time as a consultant.

What you should do instead is: (a) charge more and (b) consider adding
interest on late payments. Lawyers and accountants do that, and then they
don't really care if you're late paying because they've been charging you
favourable (to them) interest.

\+ I'm in the process of spinning down the consultant thing and getting a
"normal" job again for a while, largely because of cash flow errors. It was
one of several hard lessons learned, but that's partly why I bothered to
comment: it's not realistic to expect good clients to change the way they do
business for you, so you need to understand, accept, and plan for the reality
of stuff like delayed payment.

~~~
tptacek
I don't know if the "late payments" thing works for anyone else, but speaking
from my own limited experience: it's better to take any given business concern
out of your client's hide in increased rate than to add any complexity to
contracts.

To a one, the most lucrative clients all have contracts reviewed by house
counsel, and many have purchasing departments trained to do nothing but review
contracts. Anything remotely complicated you put in a contract is (a) going to
get stripped out and (b) potentially going to add weeks to the amount of time
it takes to get a master agreement in place; more than once, a few weeks delay
in legal was all it took for the window of opportunity for a contract to pass.

At any rate: you are exactly right. Have you ever seen a thread where Patrick,
me, or some other established consultant harangued HN about raising their
rates, and about _not_ setting rates based on some double-digit-percentage
uplift of what their last full-time job was? _This is why_.

~~~
napoleond
It might be a regional thing; every independent professional I've ever hired
has done something like "Net 30; 1.5% interest per month on late invoices" so
businesses here are used to it. I've never tried it myself (benefit is
marginal compared to just raising rates, as you say, plus it's a PITA to
actually enforce) but I don't think it would have presented any problems in
legal. YMMV, obviously :)

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fsk
For one contract, I did a couple hours of work and never got paid. It isn't
worth the hassle to try and collect, so I just wrote it off as a loss and a
learning experience.

Even with a written contract, as an individual freelancer it probably isn't
worth your time and money to lawyer up and try to collect.

There's only one way to make sure the bill never gets too big. Once the amount
owed reaches a certain amount, refuse to do any more work until you get paid.
Ideally, you're working on an arrangement where you get paid every 2 weeks.
Then, the most you can lose per client is 3-4 weeks' salary.

~~~
chrisBob
One contractor I worked with recently (hardware design) billed every month or
$4k which ever came first. This works well, and keeps everyone aware of how
costs are adding up.

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tptacek
Not in our experience.

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danielkyulee
You should be getting paid on a continual basis. 100k worth of work for no pay
is ridiculous.

I have never heard of a startup exploiting a freelancer this way, but wouldnt
be surprised if this happens.

I can imagine unethical startups trying to exploit a developer who is too
trusting. Don't be that developer. Make sure to have a contract, and make sure
to be paid for it biweekly, or monthly.

And if they don't agree to that, then well, you probably shouldnt be working
there in the first place.

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czbond
Startups are a dicey bunch, cash flow is always "in flux". With that said,
tightly covering your development with staged hours AND/OR deliverables and
stopping development completely when payments are missed can help alleviate
some loss.

~~~
sbntn
Agreed, it's a long story but I have definitely learnt a lot and do business
very differently now.

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alinajaf
Bill weekly, offer a 10% discount for 100% pre-payment or you take at least
50% of the initial engagement up front. That cuts out clients for whom you've
either a) not demonstrated enough value to or b) weren't going to pay you
anyway.

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noname123
Why not charge a higher rate to startup's to price in the risk of non-payment
and reduce the rate to corporations who are more reliable?

~~~
rahimnathwani
Answer: Adverse selection.

If you charge 2x your normal rate for some class of clients (e.g. startups)
with no other changes in how you source or engage with clients, then you may
end up with only those startup clients who were not going to pay you anyway.
The guys who would have paid you will baulk at the 2x fee. Those who accept
don't care that the fee is 2x, as they weren't going to pay anyway.

There's no substitute to doing due diligence and limiting the risk (e.g.
through contracts and short payment cycles, as others have said).

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minimaxir
That is why you have good contracts in place.

~~~
sbntn
There are contracts but no money. There's nothing to retrieve.. yet. So I'm
stuck waiting for them to make money or raise.

~~~
BSousa
For the future, use escrow. It just looks like you are working for companies
that have no money to pay you (and prob. never will). If a company isn't
willing to use escrow, run. They either don't have the money or are planning
on not paying you anyway. It doesn't have to be for the whole thing, but at
least until you have a relationship with them, use it. Start ups in SV
(generalising) are run by kids with little head now a days that think they are
the kings of the world, and don't care about screwing you over because that is
what they learned from Jobs or Zuckerberg or whatever.

~~~
andyakb
Will serious companies actually post the money to an escrow? I dont have any
experience with this directly, but cant imagine any company with say >100
employees would respond favorably to this request

~~~
BSousa
Those companies also usually pay part in advance. If you read a bit about
other freelancers process (even here in HN there is a lot of advice) most will
ask for some kind of advance.

