
Ask HN: Deadbeat Client – Owes us 25k – What are my options? - throwawayz
I guess it was bound to happen eventually..and i’ve just been lucky.<p>But after 10yrs of consulting.. I finally have my first major deadbeat client!<p>long story short..<p>I started smelling something bad, when they decided to suddenly fire their main backend guy ( just 1week before we would release their MVP which they wanted asap ) and without this dev, we could not continue fwd.
This was the same time our invoice became overdue.<p>When I asked what happened, they said that without any notice, their main investor pulled out and that they were going to work on some new financial docs to present to them for reconsideration…and that i should be patient and wait - as the company is now downsizing.<p>When I requested a small 5k “good-faith” payment..or that i would pursue “other” paths,
their COO ( my main point of contact ) called me to say she too was not getting paid, but that she was positive, and that i should just be patient.<p>some details:<p>1 - been working with the client for the past 6-months.<p>2 - they’ve been paying us on time for the last 4.5-months.<p>3 - they love our work. no issues there.<p>4 - they had a seed round 2-yrs ago for 3.5M ( which i guess they burned already )<p>What kind of options do i have?<p>What tactics have worked for you?<p>*I want to avoid a long drawn out process ( since i just blew all my extra savings on paying my in-house devs )<p>thanks!
======
brudgers
My random advice from the internet, is to make your decisions premised on
never seeing the money.

1\. The COO did not treat paying you as a priority.

2\. The COO normalized non-payment by stating they had not been paid.

3\. The company is not even offering pennies on the dollar.

4\. The investor has pulled out.

Roughly, your options come down to luck.

1\. Maybe the company gets money _and_ decides to pay you and everyone else
for work done instead of using the money to grow the company or pay
themselves.

2\. Maybe the company gets money and you and everyone else who they owe money
can sue them and win and the money spent on attorneys turns out to be well
spent.

3\. Maybe the company files bankruptcy and you pay an attorney to represent
you and their is a pile of money so large that even unsecured creditors get
paid.

4\. Maybe you hire an attorney and successfully litigate a claim and the
company has no money.

5\. The most likely situation is that the company goes bankruptcy and you
never see money no matter what you do. It's the one to plan for.

6\. Just move on and find paying work and consider requiring a retainer or
other method of billing where non-payment does not hurt so badly.

Good luck.

~~~
amorphid
I had a deadbeat client who owed me about $10K. What I really wanted to do was
sue, make his life miserable, call his investors, etc. But in the end, I just
walked away. He'd burned through all of his money, and I didn't actually hate
the guy. And I'd be happy to work with him again, if he pays in advance. :)

Life is too short to get hung up on small hiccups.

~~~
Iv
I had a deadbeat client in Japan. I did want to walk away but my Japanese wife
did not. She declared that unacceptable from a Japanese company. The procedure
was surprisingly straightforward. When the person refused to come to trial, we
were authorized to walk in with a legal specialist to seize down assets, only
to find out that the guy had just been evicted by his landlord and all the
physical assets already seized.

~~~
throwawayz
funny my wife offered to do the exact same thing almost and call him at home (
found the # online! ) and really lay it on him how he's stealing food from our
kid's mouth.

~~~
amorphid
If I had a crusading wife, there's no way I'd get between her and someone who
owed money to the family's primary source of income. :)

That being said, for me it doesn't make a lot of sense to sue someone without
money. That is just throwing more time and money down a hole. It was more
productive to learn from the experience, adjust client engagement process to
reduce the chance it'd happen again, and move on.

------
mattbgates
First and foremost: STOP ALL ACTIONS UNTIL PAYMENT IS RECEIVED. Make sure you
document EVERYTHING and have a document of EVERYTHING. Emails. Chats. Get
yourself an attorney who specializes in this. Or if you have ever watched any
of the judge shows, you'll definitely see plenty of cases like this. The
biggest mistakes people make of losing their case, well actually, I wrote up a
list of things to do if you so choose to go the small claims court route:
[http://www.confessionsoftheprofessions.com/courtroom-
televis...](http://www.confessionsoftheprofessions.com/courtroom-television-
lessons/)

~~~
developer2
>> STOP ALL ACTIONS UNTIL PAYMENT IS RECEIVED

Absolutely not. _He_ may be in breach of contract by withholding.

>> Get yourself an attorney

This. He should have already had a lawyer on consult. If not, he needs one
now. There is no way to resolve this risk-free without a lawyer.

~~~
mcv
They are already in breach of contract by not paying. It sounds unreasonable
to expect him to continue working when it's unclear he's ever going to be
paid. (Or likely he's never going to be paid, even.)

~~~
developer2
How do you know the company is in breach of contract for not paying? Have you
seen the contract that is in play here? You have no idea what the payment
terms are, let alone clauses regarding delivery. Even if we were to see the
contract, we are not able to assess and respond in a manner that has any legal
merit.

Seriously, these kinds of "Ask HN" make me angry with the kinds of comments
people reply with. You cannot possibly know the legal situation the OP finds
themselves in based on the (lack of) details they've written. What you are
telling them could see them in court losing the case, and maybe even having to
_pay_ damages for cutting ties. You are giving advice that could potentially
destroy their business, or even result in personal financial ruin.

Read that again: your comment could ruin a person's life. Think twice before
you pretend to be in a position to help someone by spewing advice without
having a clue what the situation calls for.

Frankly, I'm astounded that HN allows "Ask HN" posts seeking advice with legal
ramifications. These should be moderated and removed. The _ONLY_ valid answer
to these posts is "consult a lawyer". Nothing else is helpful, whatsoever.
Even real lawyers who might respond cannot determine the correct course of
action without hours of research into the specific case at hand.

~~~
mcv
I'm not the one giving legal advice, I'm giving a moral opinion: it's
unreasonable to require someone to work for no pay. That is something that
should be illegal. I'm here for the moral commentary. Of course he should
consult a lawyer. Plenty of people pointed that out already. That does not
mean this is not an important topic for discussion; it is vital that people
know what to pay attention to in their contracts.

And if lack of payment is not breach of contract, it's a bizarre contract.
That would mean he already agreed to work for free, and that seems very hard
to believe. If it does, he's a much bigger idiot for that than for relying on
anonymous internet legal advice.

Then again, some laws, jurisdictions and judges are absolutely surreal. And
that's also why anonymous legal advice on an international forum is
meaningless: what matters is your local jurisdiction. But that doesn't mean we
can't have an opinion on it.

~~~
developer2
It's not possible for a random stranger on the internet to provide, as you
call it, "moral advice". Moral advice never wins a case in court. Any advice,
prefixed with a bullshit adjective like "moral", might be - yes, stupidly -
interpreted as information that might have _some_ amount of legal merit for
someone who is in a legal predicament. The fact that "IANAL" (I Am Not A
Lawyer) even exists as an acronym is a disservice to anyone who ever reads an
"IANAL" comment trying to find some shred of hope that will assist them in a
legal scenario. People wear blinders when in desperate situations, potentially
taking advice from people who don't have a goddamn clue what they are talking
about.

Now I don't give a damn how rude I am being: never give advice to someone
regarding a legal matter other than "you should talk to your lawyer", unless
_you_ are offering _your_ legal services - and surprise, legal discussions
would never happen on a public forum. You could destroy a life if you offer
ill-advised information, and the recipient believes you instead of seeking
legal counsel. Unless you know every facet of their case, even if you're a
lawyer, you cannot guarantee that your advice is not ill-advised for their
situation.

------
dsacco
1\. Talk to an attorney. Good attorneys will usually be happy to have an
initial consultation with you for no cost unless you decide to move forward.

2\. The next time a member of the C-Suite in a VC-funded startup calls you to
try and draw a false equivalence between them not getting paid and you not
getting paid for sympathy points, call them out on it by reminding them 1)
that they have equity for that risk, 2) that you don't, and 3) that you're
insisting on restitution. Be forthright and assertive about the terms they
agreed to in the contract (since you'd been at this, I assume you have
contracts in place), but do not be the one to escalate the situation further.

3\. Make sure you're communicating in writing everywhere (email is fine). For
calls, send follow-up emails summarizing the calls while they're fresh in your
memory. Take notes on the calls. Prefer written communication to calls where
possible. Record calls if you're in a one-party state (based on another
comment, you seem to be).

4\. Don't be antagonistic and don't be passive aggressive. Especially don't do
anything that makes you feel good emotionally but causes your client to become
a more sympathetic party, and potentially sever some of their contractual
obligations. For now, consider the remaining invoice balance a loss and be
dispassionate about it.

5\. Going forward, make sure your contracts have the following clauses, if
they do not already: 1) all work is exclusively owned by you until the last
invoice has been successfully deposited in your account; 2) invoice payments
are required for your time according to the agreed fee schedule regardless of
ultimate deliverable completion, while both are true: a) the deliverable is
being developed in good faith, and b) neither party has yet provided a clear
and explicit communication that the work must pause.

Point 5 is important. If you are working on the project and they do not tell
you it needs to pause until mid-way through your next invoice cycle, they are
contractually obligated to pay for the time they didn't intend to use but for
which they did use and failed to notify you. Even more importantly, the work
is not transferred to them until they pay you, which means they legally have
nothing until their obligations are paid.

In the worst case scenario under this template, you will not recover your
money. On the other hand, they won't have your intellectual property and they
won't be able to sell it off to pay other creditors. You should realistically
prepare for the possibility that you're never going to see the money your
client owes you.

~~~
throwawayz
great tips and terms!

luckily I had the the IP ownership > full payment one in our contract. But i
like the 'full-coverage' option too. I will even add an extra penalty for last
minute pull-outs/or just ask for a 25% retainer.

Having never dealt with the CEO, i sent him a VM to his home, which i heard
later he was shocked to get.. which kindly asked him to respond to my email
that went:

    
    
        This is Joe, CEO of XYZ, the studio which has been faithfully working on your new products since last year.
    

I’ve tried inquiring with Patricia as to when we could expect payment of all
our outstanding balances to-date ( see below ) -- only to have been repeatedly
given various specific dates which have come and gone.

Her last update to me was “Sorry I have no more info..thanks for your
patience”.

Please understand we are a very small operation which relies on timely
payments to stay in business.

We only have a few select clients we honorably service with the highest
standards and transparency, as we value the long-term potential of each
relationship.

We've been very flexible with the delays and would like to confirm -
personally with you - as to when we can expect payments of the (three) 60, 50,
and 30 day late invoices.

Once they are fulfilled, we can happily continue rendering our services and
finish up this incredible app.

—his reply —

    
    
        I got your phone call; it’s my understanding you are in frequent conversation with Pam, and she has been trying to keep you as updated as possible.  We have been in a bit of a financial squeeze ourselves, in part because funds we thought were coming in didn’t, and that has affected our ability to pay what we owe to you and some others.  I do expect that we will have clarity next week with regard to when we can make the payments due.  As a small business ourselves, and someone with many years experience in that position, I know how difficult this can be and we really do appreciate your understanding.
    

—my reply —

    
    
        Thanks for your timely response.
    

If you've been in my position you then you fully understand the entire
situation.

I absolutely need $5000 by next week to fulfill both my employee and family
commitments on my end.

The last thing I want to do is purse alternatives. What is the likeliness of
this payment?

—to which his COO decided to call me and commiserate with no clear deferred
payment plan and just a sob story.

~~~
arthurcolle
Close to zero chance you will receive the money by next week.

------
techjuice
Your best options is to get an attorney and take them to court to recover your
losses. No need to wait, especially for such a large amount of money. Get all
your evidence together now so you can take it to an attorney tomorrow morning.
If they had intentions on paying you on time they would have set aside your
costs so they can be paid on time. Any company that does not do so does not
care about paying you on time or staying in agreement with any contracts or
other obligations.

~~~
throwawayz
i also recorded my last convo with the COO.. but not sure if it is usable in
court as she didn't know about it.

~~~
mrits
some states (Tx) only require 1 party to consent.

~~~
throwawayz
both companies are in NY : where there is 1 party consent
[http://www.dmlp.org/legal-guide/new-york-recording-
law](http://www.dmlp.org/legal-guide/new-york-recording-law)

------
tehwebguy
Look into filing a breach of contract suit yourself. in my opinion,
threatening lawsuits is silly and the only stands to make you look bad but
filing one shows that you're serious and puts you at the top of the payables
list.

In some venues it's very easy to file cases like this.

~~~
siegel
This is only possible if the contract is with him individually, instead of an
entity he created. In most places, a business entity cannot represent itself
in court. It needs to hire a lawyer.

------
developer2
You should _not_ be asking HN for advice. I've actually flagged this post for
your own good, as it is irresponsible for anyone to even attempt to advise you
with specifics, and it would be a huge misstep for you to follow any advice
posted here other than "talk to a lawyer, now".

You should have had a lawyer on consult from the beginning, reviewing the
initial contract and its payment terms. If the client isn't paying, you need
to be talking to your lawyer. If you don't have a lawyer and an ironclad
contract, the entire situation is a toss-up and there are no guarantees. You
can't even refuse to deliver and walk away from this client without a lawyer's
determination that you are not breaching contract by doing so. You believe you
are the one being wronged. The courts may not agree, and the company could
even turn around and sue _you_ for taking their project hostage.

Only _your_ lawyer, with knowledge of your state's laws, a copy of your
contract, and an archive of all communications between you and your client,
can help. Do not make a single decision based on HN comments, no matter how
insightful they seem. If you follow the wrong advice, you could well see
yourself in deep legal trouble with ramifications worse than losing the
$25,000.

tldr; You should have had a lawyer at the start of this contract. If not, you
must get one now. Get a lawyer. Now.

~~~
mcv
The idea that he could be required to continue working on this despite the
client's inability or unwillingness to pay, is utterly repulsive.

Also, as a freelancer I don't lawyer up for every single contract. Now I work
mostly for an hourly rate, and usually for big clients that pay reliably, on a
standard contract that I don't get a lot of say in (there are always some
details that I address, but I don't get to write my own contract). So in a
sense it seems unreasonable to expect up-front lawyering with extremely
restrictive clauses on regular freelance projects.

Is the insecurity around startups the issue? Maybe working for a startup does
require more lawyering. (My only non-payment came from a tiny 4-person outfit.
Too stable to really count as startup, I think. Only resulted in $700 damage,
though.) I guess at the very least the contract should contain a clause that
the code remains yours until you've been paid.

~~~
developer2
I strongly believe that lawyering up is the only safe approach. At a bare
minimum, have a lawyer draft and/or review a single generic, reusable contract
that covers the important bases. You only pay a one-time upfront fee. If a
client insists on using their own contract instead of yours, pass it through
your lawyer - or skip that job as being too much of a risk. Then keep the
lawyer on speed dial so you can call them the moment you cannot resolve a
grievance with a client.

My disbelief comes from the fact that this was a large contract worth more
than $25,000 ($25k outstanding balance, with previous payments having been
made). It is incredibly naive to allow an account to go $25,000 in the red,
without having a lawyer ready to jump on board.

~~~
mcv
I find this a difficult situation. I know that with the litigatious culture in
the US, lawyers practically need to be involved in every aspect of society,
but I would really prefer if we could interact normally in good faith without
involving lawyers in everything.

In Netherland, this actually works. I've been working for my current client
for two weeks now and the contract has only just been signed. We can do a lot
in contracts, but I can't accidentally sign myself away into slavery. I can't
be expected to work for no pay when I'm not the one who fucked up.

And in this climate, $25k outstanding balance is not that unusual; I invoice
monthly, and the client usually has a month to pay. So with $10k invoices, by
the time the next invoice goes out the door, it could be $20k. Though in a
jurisdiction with less legal structure and protection, I can imagine monthly
invoices would be way too risky. But even then, if your invoices, are bigger,
you can still easily get into this situation.

But again, it strongly depends on where you live. What's totally reasonable in
one place, could be insanity in the next.

~~~
throwawayz
MVC is correct. it was just 1 month behind..when things started to slip.. and
thats when we stopped work.

having said that we will be taking major retainers and updating our contracts
so they are bulletproof.

------
hullsean
It's good that communication channels are still open. That's very import.

o Whatever you may feel always be polite with reminders. Do not make them
angry or make accusations. It sounds like they're already in a frustrating
position.

o remember they have a legal obligation to meet payroll. Next on the list is
lights on, heat & rent. After that hosting bill. And then below all of these
are vendors. Hopefully you are at the top of the vendor list!

o if they run out of money you may not get paid. That's how it works!

o over the years I only had this happen once. It was $9k, but I subsequently
got 2k of that. Still every month like clock work I send "a gentle reminder"
of outstanding invoice for $7k. They still respond. So I know if that
situation changes in the future I'll be first in line to get paid.

------
leepowers
A few thoughts from my own experiences:

A) They have been good with payment in the past, so there's still a chance
they will settle up once their cash situation is sorted out. The key thing
here is to keep your needs on their mind. Meaning: calling them 1-2 times a
week, checking up on the status of payment, sending emails checking in on the
status of payment. Escalate as needed, letting them know you are willing to
pursue any avenue to get paid.

B) Do you have any leverage? There's a reason why any developer or development
company worth it's salt demands an up-front deposit and deliverables on final
payment - to ensure that they get paid.

C) If they're running low on money they are going to look for something that's
going to give. They will have to make hard decisions, and if you appear to be
the path of least resistance, they will take you. Refer back to point A. If
you can stay on the forefront of their minds and make it clear you're not
going away they will be more likely to prioritize paying you instead of paying
vendor X.

D) Lawyer up? Probably. If they continue to be non-responsive to payment
inquiries consult with a lawyer and see if he'll write up a demand letter.
Again, they're not prioritizing paying you and a simple demand letter may be
enough to get their attention and put you at the top of the stack. A lawyer
can also help you escalate as needed including who to sue, when to sue, and
where to file a lawsuit. At $25k this should be well beyond any small claims
court.

E) If they're broke or going out of business you're going to have to be a hard
ass to see any of this money. And you have to determine if the trade-offs are
worth it. Assume it will cost you at least $5k in time, lawyer fees, debt
collector fees to get to payment. Do you want to risk the time and money? You
might spend the $5k and still end up with nothing. So think of any amount
you'd be willing to settle for, including any lawyer fees.

------
RickS
I've been through a lesser version. Ended up negotiating a payment plan that
got me 4.5k on 7k, which, as these things go, is a huge win. The people saying
you're lucky to get 20c on the dollar are dead on.

1) Do not assume that 3.5M is spent. Start inquiring pointedly, then
aggressively, about exactly what remains. The odds are good that they're
putting they payment of other bills above yours. Your job is to convince them
that shorting you is going to hurt them more than shorting hubspot et al.

2) Explore your legal options with an emphasis on publicity. That COO isn't
trying very hard. Their tune might change when it's spelled out for them that
their mishandling of this situation will come up in the first page of results
when their next potential employer googles them.

3) Let them know you're about to wardial every investor in the state. This
person wants to raise money? Then it would behoove this person to pay you
before you call every shop in town and let them know what's going down. (In
reality, the wardialing strategy will do nothing, it's the fear factor that
matters here)

4) Do not agree to any delay that isn't contractually backed. They need to pay
you SOMETHING upfront, and if they want to talk about paying you later, that
ink needs to be dry within 48 hours.

5) Call their landlord (after first warning them that you're about to call
their landlord). Let them know that they're about to get run out on, and
should start conversations now. (Again, it's not that the landlord is really
going to act that fast, it's the gut wrenchingness of FEELING like your
landlord is going to act that fast)

Basically, you're to treat this org as a hostile entity, and you are to make
every waking moment for them as anxious as possible for as many people as
possible. Call their spouse and let them know that the party's over. How much
noise can you make, and how much pain can you convince them is headed their
way?

If they owe you 25k, your job now is causing them 26+k of pain as acutely as
possible. Go for the throat.

Remember, as long as the CEO hasn't sold their car and taken their kid out of
private school, it's not that they "can't" pay you, it's that they "won't".
There are always options.

And then, next time, for fucks sake, 50% upfront and a compounding non-payment
clause. Can't buy food with good intentions.

~~~
jorvi
Pretty much the fast track to being hit with the holy trifecta of
libel(internet), slander(investors/landlord) and harassment(spouse). Do _not_
do this.

~~~
mcv
Yeah, parts of that advice sound very questionable. Making non-payment more
costly for them than payment might be reasonable advice, but slandering them
and harassing their family can end up a lot more costly for you.

If you want to play this hard, threatening them with a lawsuit and bankruptcy
is probably the most painful thing you can do.

------
NicoJuicy
2 years ago a seed round with 3,5 million dollars and you are doing the MVP.
Where the hell went the other 3+ million?

I don't think you will get the money, the are red warnings every where. Only
release the MVP ( not code) if he asks to, but stop development.

Good luck

~~~
throwawayz
for the last 4 years they have been running their v1 app. we were brought in
to build their v2 apps.

------
cylinder
Debt collection lawyer. Sometimes a demand letter is all it takes. Defending a
clear cut debt in court is irrational and they'll likely settle or no show and
you get a default judgment. Which state?

------
EnderMB
Alongside hiring a lawyer, a good debt collector can ensure that you get paid
sooner rather than later.

Of course, it all depends on why the client isn't paying. If they're
legitimately out of money then the likelihood that you won't get paid (or will
only get a fraction of what you're owed) increases dramatically. I've been in
a position where a client withheld funds when they could easily pay, and a
debt collector had the money over to us within the day.

------
foobarbazetc
You're likely never going to see that 25k and then you're down that plus
lawyer fees.

How overdue is it? If we're talking 30 days then you need to wait a while
longer before taking some action.

Threaten to report them to D&B, Experian/Equifax etc. Then if they still
haven't paid by 60 or 90 days or whatever talk to a lawyer about the cheapest
way to threaten them.

------
siegel
Two questions that might help in framing a response:

1) are they already already using the code you developed?

2) if so, in what manner? Is it an in-house tool for them? A platform they are
using to provide services? Some sort of code that's further distributed or
sublicensed?

Thanks.

~~~
siegel
Just to clarify, I think focusing on threats to sue them for the debt are
overly narrow. Depending on what they are doing with the IP (if anything), you
have potential copyright infringement claims. Those claims carry with them the
potential for statutory penalties (could be 6-figures per work infringed).

If I were to threaten them, that would be a big part of the threat. But, of
course, it depends on if they are using the IP and how.

------
artur_makly
And when all else fails.. there's the rat:
[http://www.bigskyballoons.com/ratpack.html](http://www.bigskyballoons.com/ratpack.html)

------
unstatusthequo
Attorney on contingency. Or report to credit agencies. or both.

------
stigo
STOP! Spend your time and energy on clients that pay.

~~~
developer2
Wrong. Depending on the contract and exact details of this situation, the
client could turn around and sue him. He needs a lawyer, even if he wants to
walk away.

------
Tmp_login
The only way you are getting paid is releasing the MVP asap. Make a new
agreement with the COO with some sort of acceptable terms. Attorneys will just
take your money $5k ( you likely do not have ) and give you false promises.
Your chances of getting anything without the MVP being released is 0. You
might even offer to host it yourself.

~~~
throwawayz
"The only way you are getting paid is releasing the MVP asap" \-- this is
impossible for us to do since we would need to spend a ton of time
understanding their existing backend ( 4yrs old ) and at this point this MVP
is worthless to them if they are truly imploding financially.

~~~
karmajunkie
Yeah, that's not good advice. You're throwing good money after bad there.

The lesson learned here: work off a retainer system the way most lawyers do. I
get two weeks of billable hours from clients up front; then I send them an
invoice every week, giving them a week to pay it, at which point they've
burned through the remainder of their retainer unless they keep current on
invoices. That way I'm never out if they up and decide they're running out of
money.

Your best option now is to talk to an attorney experienced in debt collection
from insolvent entities. If they're going belly up, then the assets are going
to be liquidated, and you want to be as close to the front of the line as you
can get. Depending on the state, debts may have to be paid before employees
are (though the pro-labor side of me thinks that's kind of shitty.) Be frank
with them, but professional, and let them know while you understand the
difficulties they're in, you have to take steps to protect your own business,
so while you hope that you can work it out eventually you need to involve your
attorney at this point to ensure your place in line.

Chances are, you still won't see anything, which sucks, I've been there. I
hope it works out for you.

