Client refusing to pay until they've been paid

[Sheppard Digital]

Back in June I started a software project for a client who had won a contract to develop a reporting tool for one of their clients. They've outsourced development to me. At the beginning, I provided a cost along with details on the bottom of the costs stating 30% payment upfront, 30% mid-way through the project and the final 40% on completion.

We're now 90% complete on the project, and I've raised the mid-point invoice for 30% of the project. I've receive an email from my client to basically say they can't pay it as their payment from the client has been delayed. I've read the contract I signed when I started this project, and at no point does it mention that I have to wait for my client to get paid before I get paid.

The end client themselves are dragging their heals on the project. In order to complete it I need to connect to their corporate VPN and remote desktop into a machine on their network, but they always have that disabled as they are using the reporting tool we've built and showing it off to visitors.

We started this project back in June, and we've been 90% complete for at least the last 6 weeks. I'm a sole freelancer, and I've got a fair amount of capital tied up in the project.

So I have two questions;

1) Is it unreasonable for me to expect my client to pay my invoice before they've been paid by their client, and what's the best way to approach this without annoying my client.
2) given the delays, am I within my rights to raise an invoice for the completed portion of the project to date (90%), leaving a final 10% to be paid upon completion.

I've been in a similar situation before, where a client delayed and delayed, the project never got finished, the client washed their hands of it, and I didn't get paid for some of the work I'd done. I want to avoid this happening again.

 

[Newchodge]

I've been in a similar situation before, where a client delayed and delayed, the project never got finished, the client washed their hands of it, and I didn't get paid for some of the work I'd done. I want to avoid this happening again.

Then you should have framed your contract to reflect that. I would also suggest that you should have invoiced the mid point some considerable time ago.

You are not unreasonable in expecting payment to contract and you can start the legal process to get your 30% with a Letter before Action now. That will achieve nothing if your client has no money to pay you.

You need to tell your client that you expect the contract to be honoured and no further work will be done until the 30% is received. You could also chance it and state that, given their delays you want a further 30% before you finish. You are not entitled to do that, but it may be worth a try.

 

[Mr D]

Not sure you chasing the money can avoid annoying your client.

For the future it may be worth looking at your credit control to tighten it up or not lend money to companies, instead getting partial payment up front and not continuing the work if payment isn't made. You have done 90% while being paid for 30%, sounds like a bad deal for you. Not helped by carrying on working.

 

[Lovetts Solicitors]

Legally you're entitled to the money even if your client hasn't themselves been paid. However practically if they don't actually have the money then you may have trouble getting it from them. Is this something where you can work with your client to put pressure on the end client? Especially if it's clear the end client is actually using what you've built as that would make it difficult for the end client to complain that what has been done so far isn't suitable or good enough.

Is there anything in your client's contract which prevents the end client from using what has been built until it's been paid in full? That would be another lever you could get your client to pull to put pressure on the end client. I'm sure they want to get paid as well!

As mentioned going forward you probably need to be tighter about when you invoice for monies under your contracts. If this is a regular issue which affects your cashflow you could also look at other options such as invoice finance.

 

[Sheppard Digital]

A quick update on this.

The invoice got paid. So to date I've been paid for 60% of the project costs and we're 90% through the project. My initial proposal said 30% up-front, 30% mid-way through the project and 40% upon completion, but that was based on an estimate of the project taking between 6-10 weeks. We're currently up to 27 weeks, so I've invoiced my client for a further 30% and have left 10% to be paid upon completion.

I'll probably have the same issue with this invoice as I did the last.

Sadly, I didn't get the client to sign my terms, instead I signed their terms, which has conditions in place meaning that if I don't stick to my timescales then the client is given credit towards future projects, I didn't have an issue with this, as I wasn't planning on delivering the project late. What I've come to realise though, is that the terms protect my client, but there's nothing to protect me when the end client drags their heels for months and causes the project to go well overdue, leaving my not being paid for work I did months ago.

Less learnt, I think in future I'll have clients sign my terms, and I will invoice at the end of each month for the work done during that month, rather than splitting the project costs in three.

 

[dotcomdude]

I will invoice at the end of each month for the work done during that month, rather than splitting the project costs in three.

This is the only real way to stop things getting out of hand. Maybe also consider a minimum - even if it's only a couple of hours each month. Then the onus is on them to not let things drift uncontrollably.

 

[paulears]

I do accept this from two of my regular clients - but I first agreed to it before the first job. Works fine. In most of my work, I have no information on who a client might be and how much they charge or things like that. Not my business. My t&Cs state 30 days, and unless agreed it's 30 days!