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Ask HN: Deadbeat Client – Owes us 25k – What are my options?

• techjuice 9y ago
  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 9y ago
    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 9y ago
      some states (Tx) only require 1 party to consent.
      • throwawayz 9y ago
        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
• Tmp_login 9y ago
  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 9y ago
    "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 9y ago
      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.
    • deleted 9y ago
      [deleted]
• dsacco 9y ago
  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 9y ago
    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.
• brudgers 9y ago
  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.
  • CodeWriter23 9y ago
    Brudgers is spot on, and #5 is the most likely outcome. If their rich guy investor has cold feet, it's probably because they're running a shitshow not a company. Or rich guy investor actually doesn't have money. That said, my additional random internet two cents for the inadvertent consultant turned banker for his/her client: Do not do another thing for them until they pay. You can make it nice, couch it in terms of "my employees and I can't eat, fuel our cars and feed our children with promises. Let us know when the money comes through." And say it in a much nicer way than I just wrote. If you have any materials including source code commits, deliver them on request. Holding things hostage gives them a leg to stand on should you need to go to court, or could be cause for them to sue you. "We withheld payment because they didn't deliver the code". You've got nothing to lose by delivering their materials. Get receipts or written acknowledgements of anything you return, with a time and date on them. Send your own acknowledgement email of the receipt so they can't claim the receipt is forged. Then you might consider filing a case which they probably won't fight. You can maybe just sue for $5000 in small claims, I know $.20 on the dollar sucks but it's sucks less than $0. But you can file and obtain a lien for less than $200 in small claims. You're probably looking at dropping $7500-$10000 in retainer for an attorney to sue for entire bad debt, but your resulting lien would be worth $25K + fees. Once you have the lien, you can look at selling it to a debt collection agency for probably $.30 on the dollar. They might actually still have some money and will pay you to get rid of the lien, as this will certainly scare off any investors during due diligence. And here's the non-two cents, sage advice: You've been a consultant for 10 years. It's time to start acting like a grown up business man or woman. Always work from a contract. If the client says bullshit like "We want to keep this friendly", remember that contracts preserve relationships. Walk away from clients that want to work on a handshake, any reasonable businessman or woman does the same and understands why you want a contract, and won't begrudge it. The begrudgers are amateurs at best and con artists at worst. Doesn't matter because either way, they will drag you down with them. The contract probably won't be worth enforcing, but it will proactively create the understanding about why you walked away and make the exit easier for you to deal with. And it will likely keep you from getting sued or protect you in case some loser gets the idea that suing you is their payday. And just remember, IT'S BUSINESS. It's not personal. You can still maintain a friendly relationship or even a friendship with clients while working under contract. My experience is I commanded more respect after requiring contracts, even with existing clients. It's like I leveled up 3 or 4 levels, just by hammering out a two-pager and making them sign it. Once you have the contract, enforce it. I usually structure mine into thirds, one third up front, one third at the halfway point, and one third upon completion. Works really well for fixed-rate contracts. If you're billing hours instead of fixed rate, work on a retainer. And stop work per the contract if they don't refill the retainer in a timely fashion. Again, time to grow up. You don't really want to be Bank of the Unfortunately Indigent, Inc. do you? IF you have a particular affection for a project or client, THEN you can grant some forbearance in terms of they pay half of the weekly billing every week or you're out. This is more gambler than banker, lol. You decide up front, you're willing to walk away without getting paid the rest. Cash flow problems are a reality many businesses face, and being a resource in a time of need is a bonding process and can create priceless goodwill. Gamble wisely...
• cylinder 9y ago
  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?
• unstatusthequo 9y ago
  Attorney on contingency. Or report to credit agencies. or both.
• foobarbazetc 9y ago
  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 9y ago
  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 9y ago
    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.
• hullsean 9y ago
  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.
• NicoJuicy 9y ago
  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 9y ago
    for the last 4 years they have been running their v1 app. we were brought in to build their v2 apps.
• tehwebguy 9y ago
  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 9y ago
    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.
• mattbgates 9y ago
  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-television-lessons/ http://www.confessionsoftheprofessions.com/courtroom-televis...
  • developer2 9y ago
    >> 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 9y ago
      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.)
      • kilian 9y ago
        Depending on the contract and the law, the other party being in breach of contract does not mean you can, without consequence, also breach the contract. You signed the contract so you are bound to the contract, not to the other party. In other words: two wrongs don't make a right ;)
      • developer2 9y ago
        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.
• RickS 9y ago
  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 9y ago
    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.
• stigo 9y ago
  STOP! Spend your time and energy on clients that pay.
  • developer2 9y ago
    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.
• developer2 9y ago
  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 9y ago
    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 9y ago
      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.
• EnderMB 9y ago
  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.
• artur_makly 9y ago
  And when all else fails.. there's the rat: http://www.bigskyballoons.com/ratpack.html http://www.bigskyballoons.com/ratpack.html
• leepowers 9y ago
  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.