
Ask HN: I'm owed 8k by a startup that's going under. What do I do? - gettingstiffed
I contracted (development work) for a YC startup for over a year. About a month ago, they went radio silent after I decided to end my contract with them and pursue other work. I&#x27;m now owed about $8,000 for my final two invoices (which apparently was &quot;on the way&quot; via ACH and must have been retroactively cancelled once I told them those would be my final invoices).<p>They are not answering my calls or emails. I still have access to all of their code and deployment environments (which I have not touched), and they haven&#x27;t worked with anyone else since my departure. I believe they&#x27;re going under.<p>What are my options? Unfortunately, I am in NYC and they&#x27;re in SF, and our contract provides for all disagreements to be settled in SF court.<p>Throwaway account because disparagement, NDA and all that.<p>EDIT: For everyone that thinks I have ideas about doing something malicious to their site, of course I&#x27;m not stupid enough to do that. I mentioned the access to code to show how I&#x27;m sure they&#x27;re going under (I know they haven&#x27;t had any active development since I left).
======
madaxe_again
Take a deep, deep breath, then stand and look at some water until you've made
peace with the fact that you'll never see that money.

It's worth noting that you _can_ insure yourself for unpaid invoices, at which
point should this situation occur again, you tell the insurer, they pay you,
and they will then do all the nasty legal stuff they need to to cover their
loss - and you don't have to worry about it.

Not much help for this time around, but if you're working with fly-by-night
outfits, it's a must.

Above all, don't do anything malicious, as you could then find yourself on the
end of a criminal CFAA case, which would probably mean years in jail.

~~~
gettingstiffed
> Not much help for this time around, but if you're working with fly-by-night
> outfits, it's a must.

Yeah, I guess in our community we don't think of funded startups as "fly-by-
night" outfits, even though any bank or mainstream institution would
absolutely think of them as such. I guess I had a little more confidence in
the kind of person that has convinced well-known investors to give them money.

FWIW I've had other founders treat me very well in going-under situations, so
I know it's not everybody.

~~~
madaxe_again
Totally, but even nice, well-intentioned people may find themselves in a
situation where they're utterly unable to pay. If anything, that can be a
harder situation if you're trying to deal with it personally, because going in
guns blazing "fuck you, pay me" with someone you like isn't easy.

Have been running an agency for the better part of a decade, we've grown from
two to thirty-something people, and while we started with no insurance
whatsoever, we now have policies coming out of the wazoo - and it's a double
positive, as:

a) We no longer have to deal with "bullshit" situations. More often than not
we notify the insurer and let them deal with it according to our wishes.

b) Because of (a), we can deflect most relationship damage that goes along
with "bullshit", as it's not us being the aggressive assholes demanding
payment, it's our insurers.

We spend maybe £10k a year all-in on insurance, but with several £M of
turnover and several £Bn of client revenue (i.e. revenue they take through
their sites) in the mix, it's an absolute bargain. We've only had to make two
claims - most of the time, they make situations go away (negotiated
settlement, etc.) before we have to make a claim, as it's in their interest
(cheaper resolution) to do so.

~~~
wushupork
Tell me more about this all-in insurance. Where would you find these types of
insurance companies. I run a small digital studio and run into similar
problems from time to time with startups - it's always startups.

~~~
madaxe_again
Our policies are mostly with Hiscox, brokered by Willis. Honestly, talk to a
broker, you'd be amazed at what you can insure.

------
roel_v
Too much work to do real flowchart in ascii, alternative version:

    
    
      Are they incorporated? 
       -> No: sue founders personally
       -> Yes:
          -> Will they go under in < 6 months?
            -> Yes: your money is lost
            -> No:
              -> Do they have assets?
                -> No: Your money is lost
                -> Yes: sue asap
    

Alternative: some companies buy debt at a discount. Some collections agencies
do it, since they're in the business of chasing debtors already anyway. Not
sure in US who would do that.

Do not do anything to website or whatever else you still have access to.

Those are pretty much your options. You seem to have some ideas of yourself
(judging from you mentioning 'YC', 'access to code', etc.). Those are all bad,
ineffective, stupid - or all three courses of action.

~~~
msandford
I think the reason "access to code" and whatnot are mentioned is that it would
be indicative that he wasn't fired but not told he was fired. If your client
stops communicating all of a sudden it's often the case that you're not hired
anymore and nobody there wants to tell you because that's never good news. And
ultimately not telling someone and not paying them and not returning their
calls will eventually let them figure out that they're fired. But in that case
you'd definitely lose any kind of access that you once had. Passwords would be
changed, your git privileges would be revoked, etc.

Prior to assuming that this person wants to blackmail them, think perhaps if
there might be another reason it's mentioned.

~~~
prawn
I can imagine they went silent because it's an awkward issue and they are
trying to avoid it. I know I am more likely to respond to the problem emails I
can solve quickly than those that are more difficult.

------
up_and_up
Maybe its time to level up and try using a collections agency like:
[http://www.olddebts.com/](http://www.olddebts.com/)

Whenever a client seems to be giving me the run around I pay for a simple
`Instant Collect` + `Credit Bureau Reporting` (should be around $10-$15) and
its amazing how the threat of destroying someones credit can change the
scenario ;)

I actually used this strategy to effectively get paid back from a law firm! No
lawyer needed.

It might just put you at the top of the list of people to repay.

Not vouching for olddebts here, though I am happy with their service. There
are other options.

Definitely don't give up on ANY amount of money.

~~~
gwbas1c
Comcast's automatic billing system overcharged me by a dollar when I canceled.
(I moved to a town without Comcast.)

Yes, I gave up on the money even though they sent me monthly reminders that
they owed me a dollar. Not worth sitting on the phone...

Comcast eventually sent me a check.

------
patio11
Charge more. Your rates need to have credit risk built into them. Unless I
miss my guess, they don't, and they're at a discount to market to boot.

How are you sourcing "They're going under"? If it is true, you won't be able
to collect -- if the bank account is bare then it is bare, and there is no
reason to expect the founders to backstop this invoice for you.

If you're simply being fobbed off, then the usual escalation options are a)
restate demand for immediate payment via certified mail and b) lawyer sends
them a nastygram.

But either way, charge more.

~~~
joshcrews
I second "raise your rates". I'm 90% sure you are significantly undercharging
because a) you live in NYC b) you are getting work for SF companies, and one
that's YC c) you care a lot about a $8,000 debt.

Double your existing rate immediately and don't look back!

~~~
cat9
For reference, I'd kick myself for undercharging if I billed that much for a
week, and correspondingly consider it "annoying but not business-critical" if
I had trouble collecting it. Charge more.

Your rates should not be pinned to a lowball bid for an annual salary for a
newly minted CS student. You're assuming far more risk, and hang around just
long enough to deliver major value and get out, rather than being just
productive enough that it's not worthwhile to hire someone to replace you.

You need to operate like a business that is delivering a high-value service in
exchange for a reasonable fee. And you should probably narrow down your
offering & marketing to the point that you have very few direct competitors,
and practically none once you account for location and availability.

------
akg_67
If you are individual to corp 1099 contractor, let the YC startup know that if
you are not paid within certain time, you will be filing a report to State
Dept. of Labor and State Attorney General. Labor claims get much higher
priority during liquidation. The $8K might be too high for small claims court
other wise a lien through court judgement is very effective.

Don't just walk away thinking it was cost of doing business and cost of your
"stupidity". Such actions just enable people and companies like these to
exploit others. As it is a YC startup and in SF, when you talk to anyone
(offline) in SF area, just sneak in the mention how you were wronged by YC
startup and founders. SF startup community is connected and words get around.
Reputation is important.

As a lesson for the next time, don't ever work for anyone on contract without
taking advance payment and/or have more than one pending invoice.

I work in financial data analysis and I use a saying. Never ever give someone
benefit of doubt in discussions or business transaction or believe someone
because of their background, pedigree, and how well known they are. If you do,
there is a Madoff and LTCM waiting around the corner to clean you out.

 _Edit: clarification. You should start with a letter /email to founders
requesting payment within a certain time frame, for example 2 weeks. After 2
weeks, send founders another email/letter requesting payment within 3 days and
mentioning you will take further actions if not paid such as reporting to DOL
and AG both in CA and NY as well as reaching out to advisers, investors and
shareholders of the startups. After 3 days, start a letter/email campaign
pleading for intervention by the advisers, investors and shareholders of
startup mentioning you prefer not having to resort to legal and regulatory
means and hope they can intervene to resolve the situation and it doesn't
reflect nicely on them personally being associated with such startup and
founders... blah blah blah. Wait a few days and then file complaint to DOL/AG
mentioning the steps you took to resolve the issue, mention names of all
people you contacted._

------
robgibbons
Don't believe everyone here saying, "You're screwed, you'll never see it."
Screw that... $8k is a lot of money. Sue them in small claims court.

Generally if you have a legal claim under $10k, you can get your money back in
small claims, without even hiring a lawyer. Gather up every piece of
documentation, email/IM/SMS correspondence, proof of work, etc, and bring your
case in front of a judge.

You'd be surprised how quickly some people can come up with money when they're
staring down the barrel of a legal motion.

~~~
tptacek
His debt will be with the corporation, so by the time he'd be ready to see a
court room, the company would be gone. Suing a collapsing startup is a waste
of time.

(The small claims limit in California against companies is $5k, FWIW).

~~~
robgibbons
As far as the debt being with the corporation, if a judge decides the founders
acted negligently, s/he can "pierce the veil" of liability and hold them
personally liable.

Good to know about the Cali small claims limit.

~~~
tptacek
That's true of all torts, but not paying a consulting contract is very
unlikely to be considered a tort; it's a contract dispute --- like, the
archetypical contract dispute. The whole point of limited liability is that
contract disputes end at the company.

------
chrisbennet
You are probably out of luck. I had a similar "learning experience" years ago
but mine cost me over $13K. Here are 2 things I do to mitigate the risk of
this sort of thing:

(1) Never lend the client more than 2 weeks (80 hours) pay. Make payment due
in 10 days with a step to a higher rate after that. I think for my next gig, I
will spec the rate at the higher figure with a discount for paying within 10
days i.e. $200hr or $150hr if paid within 10 days.

(2) Draw up a client services contract. I scoured the internet and drew up a
rough version of what I wanted along with a list of goals [example: "I don't
want _any_ liability"] and sent them to my lawyer to draw up a contracting
agreement. I think it cost me $6-700. The beauty of this is that you can reuse
it for multiple clients.

Lets see how this might have avoided your current situation. For one thing,
you wouldn't have gotten to $8K outstanding before you stopped working. Your
contract would also have specified that disagreements be settled in your home
state. $5K is the limit for small claims in NY.

~~~
TylerE
Actually, by your own standards he easily could have. 80 hours at even $100/hr
is....$8k.

~~~
chrisbennet
True. I almost never work 40 billable hours in a week at least not for the
same client.

------
wwkeyboard
It's a little late for you, but Mike Monteiro's "Fuck you, pay me!" talk has a
lot of good information.

[https://www.youtube.com/watch?v=jVkLVRt6c1U](https://www.youtube.com/watch?v=jVkLVRt6c1U)

~~~
codejamm
Fuck you, pay me!

Those are magic words!

------
donatj
I was in a similar situation with a company I had previously worked for owing
me around 2k for some side work I did after I left. I emailed the owner many
times, and I eventually started ccing managers who had liked me. I never saw
the money, and they went into bankruptcy restructuring shortly thereafter.
When they were in bankruptcy I contacted their lawyer and the paper work he
sent me implied I could only register debts incurred within the last 6 months
and at this point I had been trying to get my money for a good year and a
half. They've stayed open after the restructuring, but I don't think I can
claim the money now, I'm not sure, I'm not a lawyer.

~~~
segmondy
"YOU" contacted their lawyer. "YOUR LAWYER" should have contacted them or
their lawyer.

~~~
donatj
I don't have lawyer money. I was doing the side work because I needed money.

~~~
jerven
Most likely there is legal advice available for you for very little money. Ok,
I am not in the US, but in Switserland you can have an 30 minutes of lawyer
time for 50/100chf via local services. Similar things exist in the
Netherlands. In the US, talk to one of the "ambulance" chasers, that is
unlikely to cost you.

Legal options can cost a lot, but not for the first conversation. That first
conversation is 90% of the value of a layer.

------
sgt
Without presuming too much, it could be that their situation is a lot more
than -$8k. Your money is probably a lost cause, to be honest.

------
brudgers
I know it sucks. My advice:

0\. Don't take it personally. It's just business.

1\. Be thankful it was only $8k. A lot of money when it's yours, not much in
the big scheme of things.

2\. Start requiring a retainer applied against final invoice. Clients who
won't write you a check upfront, are less likely to develop the habit of
writing you checks later.

3\. Start stopping work when you are not paid promptly. The first people not
to get paid are those for whom there is the least bang for the buck. Paying
for something that is already in hand falls into that category.

4\. Become more selective about clients. Prompt payment at high rates is all
there is to a good client.

It's all part of the consulting landscape. One of the things I have come to
believe is that people will red-flag their intent not to pay early on because
it allows them to rationalize it via "I warned them" later on. To me,
insisting that the disputes are settled at the payers convenience (in SF)
rather than the consultant's is such a red-flag. Then again, once you contract
with a corporate entity in a high risk business, you're accepting the idea
that your payment can be easily avoided.

Good luck.

------
gwbas1c
Call a lawyer. Sometimes a nasty letter from a lawyer is all you need to get
someone to pay up.

------
onion2k
If nothing else, use this as a lesson not to do more work for a company that
already owes you from a previous invoice.

~~~
gettingstiffed
I've thought about that a lot - what do I take away from this?

I'm not sure there's anything I really could have done. I was working on 30
day terms (quite common), and I'd worked for them with quite prompt payment
for over a year. I probably had ~12-15 paid invoices from them for similar
amounts that were paid within 7-14 days of issue.

I stopped working for them upon the issuance of the second invoice in question
- so I had two invoices outstanding at that point, 1 that was 15 days past
issue (but not contractually due) and 1 just issued.

Do people in multi-invoice contracts really stop work until they have proof of
remittance? I've never heard of such a thing - that sounds crazy to me.

~~~
iolothebard
If it's a company that's that small before taking work have their owners co-
sign liability on your contracts.

So if their LLC(Whatever) fails, they're still on the hook.

Banks do this for every loan my small business has taken. You sign for your
company, but you also sign personally. If they won't do this, move on.

Lesson learned.

~~~
Mahn
No offense but I'd never sign a personal liability contract if I were
contracting somebody even if I had millions sitting in the bank account. In my
opinion that's just a silly idea, akin of asking a VC to sign a NDA.

------
ebbv
IANAL: If they're really going under then you probably aren't going to see a
penny of that money. I would do what you can within reason. Make sure your
claim is known if there are bankruptcy proceedings, but don't expect to be
successful. $8k may be enough to be worth contacting a lawyer about.

------
tptacek
If the company goes under, you're not getting your invoices paid.

~~~
rplnt
You can get a nice chair or something though.

------
netfire
If they are truly going down and are a LLC or otherwise incorporated, there's
probably not much you can do. Going forward, there are a few options:

\- If you are doing project-based work with specific deliverables, delay
delivery of the project until payment is received.

\- Ask for a deposit from the client up front to cover such an eventuality.
Depending on how much you want to cover your risk, this could be somewhere
between 1/2 to a full month's worth of pay. To the client, if they ever want
to terminate your consulting agreement, this becomes part of the last month's
pay.

\- Ask to be paid in advance for your work, stop working if payment isn't made
in advance.

\- Setup your consulting agreements so you are paid more frequently and stop
working if you aren't paid when agreed. This limits the amount of money that
could be owed to you.

If you are going to seek legal options for compensation in your current
situation, you should try to do it before they shut down and still have
assets. Of course you should consult a lawyer and get real legal advice from
someone who knows the law before pursuing this option.

------
umeboshi
Sorry about your luck. Kiss it goodbye, and move on towards making up for the
loss. Court is a waste plus will cost $$, and all you would likely get is a
judgement (AKA a piece of paper) telling you what you already know. Then it's
still your job to collect that money even w/ the judgement. 8k is def a nice
chunk of change, thought at least it wasn't 80k. One positive thing is you can
report this as a loss for your business which should help w/ your 2015 taxes.

Then theres always taskrabbiting a ninja in the bay area to help you collect
;) Good Luck

------
realitybites
You find another client. This one is not going to pay you, and a bankrupt
company will, in the very best scenario, give you a few pennies on the dollar,
a long long time from now.

------
atsaloli
I had a similar experience. What saved the day was reaching out personally and
relying on that personal relationship. The founder made sure we got paid as
the business reorganized even though it took a while and was nerve-wracking
for us. It took extra effort on the founder's part but he came through for us.
Have you tried calling and speaking to the head there or whomever you had the
strongest relationship with?

------
GoldenMonkey
If you are ultimately unable to collect. You can send them and the IRS a 1099,
at year end. They will end up owing the IRS taxes for your work performed, but
not paid. Something my CPA does for clients she can't collect from.

Not a solution for you, but a headache for them.

Small claims is possible as well. Just file two claims, one for each invoice.

------
damian2000
Have a read of this info here which might be useful to you ...

[http://www.shrm.org/templatestools/hrqa/pages/wagesandbankru...](http://www.shrm.org/templatestools/hrqa/pages/wagesandbankruptcy.aspx)

------
inestyne
Divide the loss by the gain and call it cost of doing business. Do what you
have to do and move on. Maybe next time don't advertise your intentions before
getting paid?

What concerns me the most is that you just had to mention access to code AND
that you had not touched it.

------
justonepost
My suggestion would be to agree to some sort of compromise. Tell them you'll
take computer hardware or less money in exchange for debts settled. Do it soon
before everyone else does it and there's nothing left.

------
doorty
This lawyer will take care of it on your behalf and will only take a cut if
they are successful: [http://justtelljulie.com](http://justtelljulie.com)

~~~
loumf
The word lawyer does not appear on that site, and I am pretty sure she's not a
lawyer.

It looks like she's an awesome AR clerk -- but her value prop is collecting
while keeping a very good relationship -- it's not as effective when the
customer has no ability to pay and you don't want to work for them any more.

------
tehwebguy
Email them again, include the URL to this page.

Name them in 24 hrs when they don't reply (don't threaten them with that, just
do it)

------
koblas
While this is advice after the fact, anybody doing contracting should spend 30
minutes and watch this video.

It's a presentation from Mike Monteiro who's the co-founder of Mule Design
Studios.

[https://vimeo.com/22053820](https://vimeo.com/22053820) \-- "F*ck You. Pay
Me."

------
curiously
Wonder why people place so much trust and value just because two guys with a
one trick pony got into YC.

I just love hearing "We are a YC backed startup". First thing they tell me.
Okay? You want a cookie now? What the hell? It's fucking meaningless, it
actually tells me you don't know what you are doing, and that I should be
divesting.

At the end of the day, if it's still a one trick pony, add any two random
capital LETTERS, still won't save a startup, because it can fail for so many
reason.

