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Red Flag Client Not Paying And Threatening To Claim Damages

We've all ignored a client that showed red flags. In my experience these projects are never worth the hassle. Let's delve into a project that exhibited red flags from the start. We'll look at preventive measures, what options the freelancer has and how insurance can help.

18Feb'20

In episode 13 of Unsure? Insure! we share the story of a software project that exhibited red flags from the very start.

We’ll talk about preventive measures, what the developer’s options are and the role insurance would play in this situation… if they had been insured.

Here’s the developer's story.

“I worked for this client full-time, but when I left to go freelance we agreed I’d finish the software project and they’d pay me after I delivered my work.

This was no more than 3 months of work so I agreed. The problem is that there was never a full specification. They kept asking for revisions, tweaks and last minute 'requirements'. This project has now been going on for over 8 months and I’ve never been paid.

Eventually things started to go south. They dodged my request for a contract and made extra requirements that gave them an advantage.

Finally they stopped answering my emails and said they’d no longer need my services. When I sent a formal request for payment—including a cancellation fee—they became aggressive and threatened me.

I no longer trust them and I don’t want to write another line of code for them. I've kept recordings of our talks and documented emails where they state that they would pay me if the project is cancelled, but they are forcing me to finish the project with their undefined criteria of what the finished project is.

I don’t think I should be responsible for the expenses they’re claiming. I've worked a lot of hours on this. I should be paid for this, but I feel forced to work like a slave.

What are my options, and what should I do if they claim that I owe them money?”

A lot of the stories we tell on Unsure? Insure! share a lot of similarities (clients exhibiting red flags, no contracts, poor project scopes). This seems to be a running theme, so if that doesn’t tell you that there are ways to run projects and manage clients to better protect yourself and reduce the risk of projects going wrong, I don’t know what will.

Going back to this story, here’s what contributed to this situation at a glance:

  • Agreeing to receive payment after project completion
  • No specification meaning the goalposts of what the completed project looked like kept changing
  • Client refusing to sign a contract

We’ve talked a lot about each of these issues before, so some of this might sound familiar.

Always have a contract

Firstly, always have a contract. Within this contract you would outline expectations around what work is to be expected, timescales and—of course—payment terms.

Both parties entered into this project without a contract because there was an existing relationship in place. The freelancer was once their full-time employee.

I can speak from experience when I say that a lot of the claims we see at With Jack stem from existing relationships. Many freelancers make the mistake of thinking they don’t need a contract because it’s a friend or existing client. Trust me—these are the projects that tend to go wrong.

If you’re not sure where to start with contracts, there are free resources like Bonsai. Alternatively, if you’re a With Jack customer and have legal expenses insurance you’ll have access to legal templates you can customise. You can also have a lawyer review the template for an additional fee.

If a client is refusing to sign a contract—like they were in this case—it’s very simple. Do not work with them. This is a huge red flag and can indicate many things from a lack of professionalism to one party hoping to take advantage of the other.

Use this as a simple vetting process. It's fine if a client wants to negotiate a few terms, but if they're refusing to sign a contract there is no project. End of.

Solid project scopes

Project scopes is another topic we’ve covered in depth. It's important to work with your client to fully understand their requirements and the scope of the project.

Part of the work that you do with any new project is to make sure there are no misunderstandings in relation to the scope, and to discover as much detail in advance as possible. This helps to lock down what work is to be expected, which means you’re not veering wildly off track and having a 3 month project turn into an 8 month project.

Even if the project is prolonged because the client has extra requirements—like they do in this case—there’s a contract in place that this then requires the budget and timescale to be adapted so you’re still getting paid for the extra work that you’re doing.

Better payment terms

In this case the client suggested that payment is made after project completion. Who does that benefit? It doesn’t benefit the freelancer who has a business to run and bills to pay.

You should have payment terms that suit you. It’s OK to push back on horrible payment terms like the one the client has suggested here. It’s OK to ask for 40% upfront, 40% when you’ve reached a particular milestone and 20% upon completion.

Be confident when asking clients for payment terms that suit you! (Also, put those payment terms in your contract so that the client has agreed to them in writing.)

Just to recap, here are some preventive measures:

  • Always have a contract. Use Bonsai or the legal templates provided with your legal expenses insurance. If a client wants to work without a contract, move on.
  • Have a solid project scope. This helps you know what the finished project should look like and the work you need to do to get there. Anything that falls outside of that requires the timescale and budget to be revised.
  • Ask for better payment terms. Agreeing to be paid in full upon project completion only benefits the client. It gives them an advantage over the project and means they can continue to shift the goalposts, which you’ll scramble to fulfil because you’re desperate to get paid. You deserve better, so don’t be afraid to negotiate payment terms that work for you.

How your insurance can help you

What options does the developer have if their client claims the developer owes them money?

We haven’t seen exactly what the client has said in relation to the developer costing them money, but if they’re looking to recover damages from the developer this would trigger the professional indemnity policy.

What triggers your professional indemnity policy is either a threat of legal action or a client claiming damages or compensation.

If you have professional indemnity insurance, contact your insurer and let their legal experts handle the situation for you. They’ll be looking to negotiate with the client on whatever damages it is they’re asking for. The cost of the legal experts as well as the agreed damages would be covered by your insurance.

I don’t think this developer was insured, hence why they were asking the internet for advice instead of consulting with their insurer. That does limit your options to avenues like small claims court or consulting with a lawyer—the latter of which has expensive, upfront fees.

Small claims court does involve a small fee and there is a lot of paperwork that can be time consuming, but the freelancers we’ve spoken to have had success with it. It’s always there as an option.

There are some positives

I’ve talked a lot about where this project went wrong, but there are some positives.

Firstly, kudos to the developer for documenting their client communication. In this example, the freelancer has proof the client has said they will pay them even if the project is cancelled.

If legal experts do get involved or this goes to small claims court, it will be difficult for the client to argue against not paying the developer after cancelling the project. It’s in black and white what they agreed to.

It's also a good move sending the client a formal request for payment as a last resort if you’re having trouble getting paid. Even though this freelancer’s client didn’t respond favourably and they became threatening, it shows the client you’re not willing to be taken advantage of (although this should be backed up with better project management like working with a contract, better payment terms etc).

You’re giving them a chance to settle payment before you take things further via court proceedings or debt collectors. Usually people want to reach a settlement as opposed to go through court.

If you have legal expenses insurance, you'll have access to a template for a letter of claim for an outstanding invoice.

My own experience of ignoring red flags

I want to finish by sharing my own experience of ignoring red flags as a freelancer. I used to be a freelance photographer and there was one client that exhibited red flags before we started working together;

  • He was asking for discounts.
  • He was asking for a style of photography that I didn’t do and wasn't in my portfolio.
  • He didn’t sign my contract (which doesn't mean you have a laid back client who wants to keep things nice and casual!).
  • He was trying to extract more work from me but at a fraction of the cost.

The list goes on…

I had a feeling that this would be a difficult job, but like many freelancers I ignored my gut because I wanted to earn money.

The job itself wasn’t great. I felt overworked, under paid and under appreciated, but the real problems began after I’d delivered my photos.

He wanted constant revisions, which—if he’d signed my contract—I could have highlighted that X amount of revisions are included, but beyond that number I require a further fee. He was never happy and I spent a lot of energy trying to make him happy and a lot of time communicating with him.

What should have been a simple, one day job spanned several weeks. If I worked out how much money I earned between the shoot, revisions and meetings, I likely made a loss.

Ultimately the money wasn’t worth the stress and I learned the hard way to trust my gut with clients. Trust your instinct if a client is showing red flags before you begin working together.

To recap, here's what to do if you have a red flag client:

  • Always have a contract even if there’s an existing relationship. In our experience those are the projects that tend to go wrong. If a client won't sign a contract, move on.
  • Define a solid project scope so that the client can’t continually shift the goalposts of what the finished project looks like.
  • Negotiate better payment terms. I can’t think of a single situation where it’s beneficial for the freelancer to be paid in full after the project is completed.
  • If your client is looking to recover damages from you, your professional indemnity policy will help. Let the insurer’s legal experts negotiate with your client to reach an outcome. The cost of the legal experts and damages will be covered under your policy.
  • Document client communication so you can refer to past conversations to strengthen your case. For example, this developer had proof that their client would pay them even if the project was cancelled.
  • Use the overdue payment letter templates that are included in your legal expenses insurance, or consider using the debt recovery service where a solicitor will chase your overdue invoices on your behalf.
  • Lastly, trust your instinct if a client is exhibiting red flags before you begin working together. In my experience the money is not worth the stress.

We asked ourselves one important question …

What do we want out of an insurance provider?

With Jack is the answer