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Clients being unable to pay has been frustrating and made me want to do less consulting... That’s why I love selling products, I get paid up front and don’t hav

Clients being unable to pay has been frustrating and made me want to do less consulting... That’s why I love selling products, I get paid up front and don’t have to worry about collecting payments. This is exactly why I left the consulting biz too. I had a web development agency with a bunch of friends & ex-colleagues that was about to make $1M in profits after 3 years. That number would be much higher, had it not been for clients (mostly startups and small businesses) that weren't able to pay (so they claimed) or went out of business. This is despite collecting a deposit of 50% of the estimated costs up-front. Before we broke $1M, I saw a great opportunity to develop a product, so I shifted my focus and have been doing that ever since. Consulting is good for getting (relative) immediate cash up-front, while products can take a long time to begin earning that same amount of cash. However, if done well, products can scale and earn much more revenue in the long run. Nathan is definitely taking the right approach for an individual entrepreneur. He's diversifying his income (consulting, apps, books) while presumably moving his focus away from consulting as his income from apps and books increases. Good luck man!

nathanbarry 14y ago
I may take Brennan Dunn's (http://planscope.io http://planscope.io) approach of getting paid 100% up front. I still have a lot to learn doing consulting. Like you said, a balance of consulting and products is a good way to go.
- biscarch 14y ago
  Interesting link, I'm trying to diversify my income for the same reasons as above. What is your thought process for charging 100% up front if you don't mind me asking.
  - nathanbarry 14y ago
    So you don't have any accounts receivable. Then you never have to worry about a client not paying. That link isn't directly to where Brennan talks about it (maybe it was on a podcast?), but read his stuff and you will learn a lot. I know I have.
brandall10 14y ago
I have a couple long term, open-ended contracts right now that I'm consulting on, billing out anywhere from 10-40 hours per week on each. The deliverables are frequent, communication is open, I invoice every two weeks with detailed line items, and get paid within 7 days. There are no up front deposits - honestly, it goes against my own values, I'm uncomfortable getting paid for work I have yet to do. The terms are clear in the contracts with work stoppage clauses and all. It's worked well going on about 6 months of doing this. Maybe I'm lucky, and maybe this is the nature of doing long-term gigs or just having clients you mesh well with, but is this really all that unusual?
- nathanbarry 14y ago
  I have one client I work for 5-10 hours a week consistently. Absolutely love doing work for them. They always pay on time and things work great. So I totally know where you are coming from. Basically find great clients and treat them really, really well and fire your bad clients.
  - schoash 14y ago
    But sometimes it takes a while until you find the right clients. I learned that you have to be very cautious. One of the problems is also, that some clients are not realistic enough, they are very optimistic, which may lead to not being able to pay you.
- AlexDanger 14y ago
  I've consulted in this manner and I'm surprised this isnt the norm. It reduces risk for both parties. The client is seeing tangible results sooner and you're minimising potential losses due to non-payment (for whatever reason).
  - brandall10 14y ago
    Exactly... at least if you're doing agile development, it seems that you should get paid in an 'agile' way :)
photorized 14y ago
Consulting may be tempting financially, but is a terrible idea strategically. For me, main realization was - why waste precious time helping others develop their ideas, when you can develop your own instead.
- adrianhoward 14y ago
  Consulting may be tempting financially, but is a terrible idea strategically Depends on your strategy. Building a consultancy with employees can be great strategy. Just ask places like Thoughtworks. I'm using my consulting work to fund our product development work. The stuff I'm doing isn't angel/VC friendly and using consulting work as a funding source seems to be a pretty good strategy to me ;-)
fudged71 14y ago
I'm young and naive. Please tell me why there is no way for you to receive your money? Are they not contractually bound to give you a specific sum? Is getting that money just too much legal hassle and money spent on court fees?
- nathanbarry 14y ago
  They are contractually obligated to pay me, but it isn't worth it to collect. Plus, I still like them. It's mostly just startups that ran out of money.
  - ryguytilidie 14y ago
    "It's mostly just startups that ran out of money." How is it excusable to have a finite sum of money, commit to paying you some of it, use all of it and then simply say "crap, we ran out of money". Some of the founders I've seen in the valley come off as incredibly immature and irresponsible, but this just amazes me, I genuinely cannot imagine being a businessperson and doing that.
    - marcamillion 14y ago
      It's actually a lot easier than you might imagine. You can kick off a $10K project with someone - when you have $50K in the bank and you expect to receive $50K in the next 4 - 8 weeks. As a result of many variables, you either don't receive that $50K and have blown through the first $50K on things you needed immediately (like salaries for your employees, light, the deposit on the project, etc.) - and because the project took 6 weeks longer than you anticipated, you never had the money when the project was done. Don't be so quick to judge. I am a consultant and have to deal with clients not paying on-time too - so I am not excusing it, but these things happen much more frequently than you may think.
      - ryguytilidie 14y ago
        "Don't be so quick to judge." I don't understand. Do you NOT think people who do what you said above are irresponsible? If you have 50k in the bank and will need to use all of it on your employees and whatnot in the next 4-8 weeks, you absolutely, 100% should not be committing 10k to a project, it seems super irresponsible and amateurish. If I'm committing 10k to a project, I'm going to make damned sure I actually have 10k set aside for it. If you don't you absolutely should not be hiring anyone.
ryguytilidie 14y ago
Can someone explain what happens here with the past due balances? I mean is it literally that someone says "Okay I will pay you x/hr to do this work" and then when you bill them they say "oops I don't have the money"? Why aren't more of these people in court and what business does someone have hiring someone to do work for them while not having money? It blows my mind that humans work that way but I guess I shouldn't be surprised.
- Egregore 14y ago
  I had one client who was an old fashioned software developer, he didn't like in my code the OOP, he was unable to understand it so he didn't want to pay me, he was oversea so the getting those money for the project was more expensive than actually the money.
- mikeleeorg 14y ago
  In our case, clients have either: 1) Gone out of business and dissolved their businesses, or 2) Claimed they don't have the finances to pay us. All clients enter into a contract with us. So when they don't pay, we have legal recourse. In #1, there's little we can do, except go to court and get in line as a debtor. In #2, we ended up with a promissory note stating they're legally bound to pay us as soon as they are able to. There are other avenues one can pursue, this is just the deal we worked out with them and all the lawyers involved.

nathanbarry 14y ago

I may take Brennan Dunn's (http://planscope.io http://planscope.io) approach of getting paid 100% up front. I still have a lot to learn doing consulting. Like you said, a balance of consulting and products is a good way to go.

biscarch 14y ago
Interesting link, I'm trying to diversify my income for the same reasons as above. What is your thought process for charging 100% up front if you don't mind me asking.
- nathanbarry 14y ago
  So you don't have any accounts receivable. Then you never have to worry about a client not paying. That link isn't directly to where Brennan talks about it (maybe it was on a podcast?), but read his stuff and you will learn a lot. I know I have.

brandall10 14y ago

I have a couple long term, open-ended contracts right now that I'm consulting on, billing out anywhere from 10-40 hours per week on each. The deliverables are frequent, communication is open, I invoice every two weeks with detailed line items, and get paid within 7 days. There are no up front deposits - honestly, it goes against my own values, I'm uncomfortable getting paid for work I have yet to do. The terms are clear in the contracts with work stoppage clauses and all. It's worked well going on about 6 months of doing this. Maybe I'm lucky, and maybe this is the nature of doing long-term gigs or just having clients you mesh well with, but is this really all that unusual?

nathanbarry 14y ago
I have one client I work for 5-10 hours a week consistently. Absolutely love doing work for them. They always pay on time and things work great. So I totally know where you are coming from. Basically find great clients and treat them really, really well and fire your bad clients.
- schoash 14y ago
  But sometimes it takes a while until you find the right clients. I learned that you have to be very cautious. One of the problems is also, that some clients are not realistic enough, they are very optimistic, which may lead to not being able to pay you.
AlexDanger 14y ago
I've consulted in this manner and I'm surprised this isnt the norm. It reduces risk for both parties. The client is seeing tangible results sooner and you're minimising potential losses due to non-payment (for whatever reason).
- brandall10 14y ago
  Exactly... at least if you're doing agile development, it seems that you should get paid in an 'agile' way :)

photorized 14y ago

Consulting may be tempting financially, but is a terrible idea strategically. For me, main realization was - why waste precious time helping others develop their ideas, when you can develop your own instead.

adrianhoward 14y ago
Consulting may be tempting financially, but is a terrible idea strategically Depends on your strategy. Building a consultancy with employees can be great strategy. Just ask places like Thoughtworks. I'm using my consulting work to fund our product development work. The stuff I'm doing isn't angel/VC friendly and using consulting work as a funding source seems to be a pretty good strategy to me ;-)

fudged71 14y ago

I'm young and naive. Please tell me why there is no way for you to receive your money? Are they not contractually bound to give you a specific sum? Is getting that money just too much legal hassle and money spent on court fees?

nathanbarry 14y ago
They are contractually obligated to pay me, but it isn't worth it to collect. Plus, I still like them. It's mostly just startups that ran out of money.
- ryguytilidie 14y ago
  "It's mostly just startups that ran out of money." How is it excusable to have a finite sum of money, commit to paying you some of it, use all of it and then simply say "crap, we ran out of money". Some of the founders I've seen in the valley come off as incredibly immature and irresponsible, but this just amazes me, I genuinely cannot imagine being a businessperson and doing that.
  - marcamillion 14y ago
    It's actually a lot easier than you might imagine. You can kick off a $10K project with someone - when you have $50K in the bank and you expect to receive $50K in the next 4 - 8 weeks. As a result of many variables, you either don't receive that $50K and have blown through the first $50K on things you needed immediately (like salaries for your employees, light, the deposit on the project, etc.) - and because the project took 6 weeks longer than you anticipated, you never had the money when the project was done. Don't be so quick to judge. I am a consultant and have to deal with clients not paying on-time too - so I am not excusing it, but these things happen much more frequently than you may think.
    - ryguytilidie 14y ago
      "Don't be so quick to judge." I don't understand. Do you NOT think people who do what you said above are irresponsible? If you have 50k in the bank and will need to use all of it on your employees and whatnot in the next 4-8 weeks, you absolutely, 100% should not be committing 10k to a project, it seems super irresponsible and amateurish. If I'm committing 10k to a project, I'm going to make damned sure I actually have 10k set aside for it. If you don't you absolutely should not be hiring anyone.

ryguytilidie 14y ago

Can someone explain what happens here with the past due balances? I mean is it literally that someone says "Okay I will pay you x/hr to do this work" and then when you bill them they say "oops I don't have the money"? Why aren't more of these people in court and what business does someone have hiring someone to do work for them while not having money? It blows my mind that humans work that way but I guess I shouldn't be surprised.

Egregore 14y ago
I had one client who was an old fashioned software developer, he didn't like in my code the OOP, he was unable to understand it so he didn't want to pay me, he was oversea so the getting those money for the project was more expensive than actually the money.
mikeleeorg 14y ago
In our case, clients have either: 1) Gone out of business and dissolved their businesses, or 2) Claimed they don't have the finances to pay us. All clients enter into a contract with us. So when they don't pay, we have legal recourse. In #1, there's little we can do, except go to court and get in line as a debtor. In #2, we ended up with a promissory note stating they're legally bound to pay us as soon as they are able to. There are other avenues one can pursue, this is just the deal we worked out with them and all the lawyers involved.