4 ms·

I switched from consulting to a company. In short contracting is a headache if what you care about is doing good tech work. Rates in the contract world represe

I switched from consulting to a company. In short contracting is a headache if what you care about is doing good tech work. Rates in the contract world represent a lot of overhead and headaches you experience there: 1. Payment risk: chances someone doesn’t pay you is surprisingly high. A lot of time is just spent chasing down your money. 2. Poor payment terms: being able to bill after 30 days of work is actually seen as generous. More and more you see 45, 60 or even 90 day terms. And clients are always playing dumb cash flow games 3. Invoicing and tracking time is not fun: There’s a lot of overhead following some clients invoicing rules and time tracking. Then you can get questioned non stop about why you spent hours on this or that. 4. Employer tax: in the US if you’re self employed you pay the employers share of Medicare and social security. 5. Health insurance: in the US you need to purchase your own private health care. This can be quite a lot if you have a family. I know outside the US, in some places, private health insurance can also be needed for other reasons. 6. Sales and marketing overhead: the work to attract clients and close deals is pretty substantial and out of your pocket. 7. Relationship work: you are always paranoid about the relationship with the client. You’re first to go if money gets tight for them. And often clients don’t communicate their grievances with vendors, they just fire them. The trust building to get good feedback is very substantial. 8. Project management: in my experience clients aren’t good at managing contractors work. You have to take a bunch of this work on yourself to help organize the work and show transparently what’s getting done. If you have any subcontractors or work on a larger team, this gets substantial and clients don’t always understand why you bill for it (though we always did).

chrisseaton 6y ago
How on earth do they justify anything except next-day payment? If they can't pay a few thousand dollars what is going on with their cashflow?
- 1123581321 6y ago
  Once a company hires a certain kind of financial specialist, they delay payments just because that’s one of the few levers they have to change how the company performs and they feel they need to do something beyond keeping things working smoothly. Just like some HR specialists make rules just because they can, or some designers compulsively adjust the brand. It’s hard for people to competently maintain status quo and feel comfortable in their jobs. In case it needs to be said, yes, there are times when cashflow is dire, employee policies are a mess and the logo looks bad.
- softwaredoug 6y ago
  They have their own lame, internal excuses. Often you're dealing with payment from a completely different procurement dept than the group you're delivering services to. So you often have to work your relationships in the project team to nag a completely different part of a company to get you paid. It's a nightmare at large companies. I had one large client that decided "we aren't going to pay bills in Dec". I'm pretty sure it had to do with the CFO playing cashflow games at the end of the year so their numbers looked good. So all vendors got dicked over... Of course if you're a giant firm, you can ride the cashflow waves. Or if you play golf with the CEO, you can put pressure to get payment. But if you're a small firm or a freelancer, the project team you work with can't really change much about what's happening. Also, net-60+ clients have a pretty "bad smell" because you know they set that up so they can play cashflow games to make their books look good.
- Grustaf 6y ago
  They have their routines for paying bills and services, it would be very inconvenient to pay ad hoc. And I’ve never even heard of next day payment, except maybe for manual labour.
  - chrisseaton 6y ago
    > They have their routines for paying bills and services, it would be very inconvenient to pay ad hoc. But why? A bank transfer is fast and trivial to do. Where's the inconvenience? I presume the actual administration work of checking they had money in a budget to pay for the work happened when the work was contracted not at the end.
    - xnyan 6y ago
      >But why? Two reasons. The most important reason is if you keep the money for 30/60/90 days, it's like a interest-free loan for the company. The stronger your position is, the longer you can hold on to the money (see walmart). It's how virtually everyone does it. Second reason, "A bank transfer is fast and trivial to do" - I'm guessing you've never done work for or been around a large enterprise or you would not be saying that. Usually it's something like "The spending committee has to approve, then Richard in accounts receivable is the only one who can sign off on the check and he's on vacation til June/"
      - Grustaf 6y ago
        No, it’s more about efficiency. If they would pay bills ad hoc they would have to do it every day, instead of settling everything once a month. Just like most people don’t go to the grocery store for individual items, they go once a week or so.
- hansvm 6y ago
  It's not justified; it's just something they want. If somebody offered me a 0% interest no-strings-attached loan for a couple months I'd probably take it too. Cash flow games can allow a growing business to take a loss on every transaction indefinitely. It's a powerful tool -- ideally to build a legitimate business that requires at least some economies of scale.
JoeAltmaier 6y ago
I put 'payment due on receipt of invoice' right on the invoice. That's worked for me even at large companies with policies of net-30, net-60 or even net-90. I submit; the payment shows up in a week or so. Another way: give a 2% discount for payment within 30 days. Haven't met an accountant that passes up a discount.
- softwaredoug 6y ago
  I think this works for a small company, but large companies, that outsource their payment team, they probably don't care... They usually don't want to deal with anything weird from a vendor, or if they do, they'll screw something up with payment.
  - viraptor 6y ago
    Sometimes they really don't care. My favourite is a corp which always pays on the last possible date - they managed to miscalculate holidays one day and get one of their large office buildings disconnected from the grid for non-payment - possibly offsetting all the money they gained on delays with that lost productivity.
  - JoeAltmaier 6y ago
    Big companies too. Its all down to whomever enters the invoice in their payment system. That's one person, never mind the size of the company.
cameldrv 6y ago
In my experience, there are a couple of scenarios where there is payment risk. With very small clients, sometimes they will decide to pivot and not want to pay for work that they're not going to use, or the project is completed and they decide that they can save money by not paying the last couple of invoices. With larger clients, you start to deal with the finance department and these guys have no stake in keeping contractors happy and just want to keep a big balance in their bank account for as long as possible. The larger the organization, the less influence the person who hired you has over the finance department, and the more disconnected the finance department becomes from the negative consequences of paying late. A few tips that have helped me: (In about 20 years of contracting/consulting, I haven't had to write off an invoice so far. I have given a discount to get paid once, and had to chase down payment a few times) 1. Maintain a good relationship with the person at the company responsible for the contract. If they like you personally and you've done good work for them, they can work the problem from inside the company and will be motivated to do so. 2. Include an IP clause in your contract where you retain IP to the work product and it automatically transfers upon full payment. If they aren't paying and are using unpaid IP that you developed, there are often some big sticks you can hit them with or threaten to hit them with if they aren't paying. 3. Make your opening offer on terms be 15 days, but be willing to give 30. If they insist on longer terms and won't budge, this is a red flag for problems later. Insist on an appropriately sized retainer based on anticipated billing to limit your exposure to 30 days after invoice. For example, if they insist on 60 days, get a retainer of 30 days anticipated billing. Often when you demand this, the contract people will circle back with the finance people and give you 30 day terms. 4. If you have subcontractors, pay them within 1-2 days of receiving their invoice. With interest rates at near zero, the value you get from delaying payment is minuscule, but paying early generates huge goodwill.

chrisseaton 6y ago

How on earth do they justify anything except next-day payment? If they can't pay a few thousand dollars what is going on with their cashflow?

1123581321 6y ago
Once a company hires a certain kind of financial specialist, they delay payments just because that’s one of the few levers they have to change how the company performs and they feel they need to do something beyond keeping things working smoothly. Just like some HR specialists make rules just because they can, or some designers compulsively adjust the brand. It’s hard for people to competently maintain status quo and feel comfortable in their jobs. In case it needs to be said, yes, there are times when cashflow is dire, employee policies are a mess and the logo looks bad.
softwaredoug 6y ago
They have their own lame, internal excuses. Often you're dealing with payment from a completely different procurement dept than the group you're delivering services to. So you often have to work your relationships in the project team to nag a completely different part of a company to get you paid. It's a nightmare at large companies. I had one large client that decided "we aren't going to pay bills in Dec". I'm pretty sure it had to do with the CFO playing cashflow games at the end of the year so their numbers looked good. So all vendors got dicked over... Of course if you're a giant firm, you can ride the cashflow waves. Or if you play golf with the CEO, you can put pressure to get payment. But if you're a small firm or a freelancer, the project team you work with can't really change much about what's happening. Also, net-60+ clients have a pretty "bad smell" because you know they set that up so they can play cashflow games to make their books look good.
Grustaf 6y ago
They have their routines for paying bills and services, it would be very inconvenient to pay ad hoc. And I’ve never even heard of next day payment, except maybe for manual labour.
- chrisseaton 6y ago
  > They have their routines for paying bills and services, it would be very inconvenient to pay ad hoc. But why? A bank transfer is fast and trivial to do. Where's the inconvenience? I presume the actual administration work of checking they had money in a budget to pay for the work happened when the work was contracted not at the end.
  - xnyan 6y ago
    >But why? Two reasons. The most important reason is if you keep the money for 30/60/90 days, it's like a interest-free loan for the company. The stronger your position is, the longer you can hold on to the money (see walmart). It's how virtually everyone does it. Second reason, "A bank transfer is fast and trivial to do" - I'm guessing you've never done work for or been around a large enterprise or you would not be saying that. Usually it's something like "The spending committee has to approve, then Richard in accounts receivable is the only one who can sign off on the check and he's on vacation til June/"
    - Grustaf 6y ago
      No, it’s more about efficiency. If they would pay bills ad hoc they would have to do it every day, instead of settling everything once a month. Just like most people don’t go to the grocery store for individual items, they go once a week or so.
hansvm 6y ago
It's not justified; it's just something they want. If somebody offered me a 0% interest no-strings-attached loan for a couple months I'd probably take it too. Cash flow games can allow a growing business to take a loss on every transaction indefinitely. It's a powerful tool -- ideally to build a legitimate business that requires at least some economies of scale.

JoeAltmaier 6y ago

I put 'payment due on receipt of invoice' right on the invoice. That's worked for me even at large companies with policies of net-30, net-60 or even net-90. I submit; the payment shows up in a week or so. Another way: give a 2% discount for payment within 30 days. Haven't met an accountant that passes up a discount.

softwaredoug 6y ago
I think this works for a small company, but large companies, that outsource their payment team, they probably don't care... They usually don't want to deal with anything weird from a vendor, or if they do, they'll screw something up with payment.
- viraptor 6y ago
  Sometimes they really don't care. My favourite is a corp which always pays on the last possible date - they managed to miscalculate holidays one day and get one of their large office buildings disconnected from the grid for non-payment - possibly offsetting all the money they gained on delays with that lost productivity.
- JoeAltmaier 6y ago
  Big companies too. Its all down to whomever enters the invoice in their payment system. That's one person, never mind the size of the company.

cameldrv 6y ago

In my experience, there are a couple of scenarios where there is payment risk. With very small clients, sometimes they will decide to pivot and not want to pay for work that they're not going to use, or the project is completed and they decide that they can save money by not paying the last couple of invoices. With larger clients, you start to deal with the finance department and these guys have no stake in keeping contractors happy and just want to keep a big balance in their bank account for as long as possible. The larger the organization, the less influence the person who hired you has over the finance department, and the more disconnected the finance department becomes from the negative consequences of paying late. A few tips that have helped me: (In about 20 years of contracting/consulting, I haven't had to write off an invoice so far. I have given a discount to get paid once, and had to chase down payment a few times) 1. Maintain a good relationship with the person at the company responsible for the contract. If they like you personally and you've done good work for them, they can work the problem from inside the company and will be motivated to do so. 2. Include an IP clause in your contract where you retain IP to the work product and it automatically transfers upon full payment. If they aren't paying and are using unpaid IP that you developed, there are often some big sticks you can hit them with or threaten to hit them with if they aren't paying. 3. Make your opening offer on terms be 15 days, but be willing to give 30. If they insist on longer terms and won't budge, this is a red flag for problems later. Insist on an appropriately sized retainer based on anticipated billing to limit your exposure to 30 days after invoice. For example, if they insist on 60 days, get a retainer of 30 days anticipated billing. Often when you demand this, the contract people will circle back with the finance people and give you 30 day terms. 4. If you have subcontractors, pay them within 1-2 days of receiving their invoice. With interest rates at near zero, the value you get from delaying payment is minuscule, but paying early generates huge goodwill.