Looking to hire talented designers, developers, photographers, and other independent creatives? Check out our new Customer Directory to connect with insured talent.

A Rise In Payment Disputes

Payment disputes are on the rise. How should you handle a client asking for a refund when you've done your job, and can your insurance help you?

10Nov'20

Payment disputes have become more common recently with a lot of businesses revising their budget and making cuts.

Payment disputes are the perfect reason why you should have insurance. In many of the disputes we see the freelancer hasn’t done anything wrong and problems can stem from the client’s behaviour, internal problems with the team, project delays, clients’ changing their mind after signing off on the work…

Whilst this may not be the freelancer’s fault the client can look to punish the freelancer by requesting a refund. Why should the freelancer suffer in this situation?

Client behaviour like this is why you should be insured. You can’t control how clients behave and you can’t predict which clients will behave like this.

Payment disputes have become more common recently—possibly due to COVID. A lot of businesses are revising their budget and making cuts. We have noticed that more clients than normal are asking for refunds. Usually it's something along the lines of “We’re not happy and want our money back. If you don’t give us our money back, we’ll take things further”.

It’s a scary threat to receive and many freelancers would respond in a way that benefits their client just to make the situation go away. Nobody wants to be sued. Nobody likes confrontation.

Insurance is designed to help you in these situations. We'll cover this in more detail below, but if faced with a similar threat the first thing to do (if you don’t have insurance) is dig out the signed contract. Highlighting what terms have been agreed to is key to diffusing problems quickly.

The contract should outline the terms around payment and what happens if one of the parties wishes to terminate the project or doesn’t adhere to the terms.

If you’ve provided the work to the agreed timescales, the client has signed off on the work and you’ve received payment it will be difficult for them to pursue a refund.

Hopefully it is a straightforward case of reminding the client of what they’ve agreed to in black and white and highlighting that you’ve adhered to the terms of the contract therefore no refund is due. It's vital to be a confident freelancer in situations like this.

You are not going to suffer because there were internal problems. You are not going to suffer because the client has decided a change of direction is due. If that’s the case they can hire you based on the new direction or work with another freelancer.

Sometimes clients do these things with no genuine intention of acting on them, knowing that with a threat of legal action most freelancers will do what the client asks out of fear.

We’ve seen plenty of situations where the freelancer receives a threat and once the insurer has got involved the client backs off and withdraws their threat.

Not everybody wants to deal with the confrontation of standing up to a client who is trying to take advantage of them, but if you receive a threat like this it's reasonable to highlight the terms and what has been agreed to.

How can insurance help?

Your professional indemnity policy doesn't cover refunds, but if there’s a threat of legal action it will trigger your policy and the insurer will help you defend the claim.

What does that mean? Every claim is assessed on a case by case basis, but generally the insurer will appoint legal experts to help you negotiate with your client. Sometimes the legal experts will do that directly. Other times they’ll assist you with drafting emails to be sent to the client.

The end goal is always the same. To show that you’ve adhered to the terms of the contract and a refund is not due.

This is why it’s important to document everything—to have a contract and to easily prove you’ve done your job.

To recap, here's how to handle a payment dispute if a client asks for a refund:

  • Payment disputes are on the rise so make sure you have processes in place to help you handle these problems if they arise
  • If a client asks for a refund, refer to the contract to show that you’ve adhered to the terms and have done your job
  • If the refund request is accompanied with a legal threat it will trigger your professional indemnity policy
  • Refunds aren’t covered under your professional indemnity insurance, but the threat of legal action means the insurer will help you defend the claim
  • Even if there is no legal threat you should notify the insurer just as a circumstance that could give rise to a claim
  • Another course of action to consider if there is no legal threat as yet is to use the legal advice helpline that’s available as part of your legal expenses insurance. Legal experts are available to assist you with contract or client disputes
  • Document everything (client communication, contracts etc) so that the insurer can easily help you defend your claim, or so that you can refer to it when defending yourself
  • Be a confident freelancer. You shouldn’t have to suffer because a client has changed their mind or has experienced problems internally within their organisation

We asked ourselves one important question …

What do we want out of an insurance provider?

With Jack is the answer