How do you protect yourself from a customer?

[AMAZINGAHMED]

It happens frequently that after finishing a project, and the customer gets into the production phase, and it's time for the customer to pay the rest of the contract value, then the customer refuses to pay.
What would you do to protect yourself and your investment?
Anyone has done tricks before to force the customer to pay?

 

[OZEE]

Incremental billing based on project milestones. Including some up-front (x% due upon award of contract) Then provide documentation upon final payment.

 

[Steve Bailey]

Find yourself a set of better customers.

In a more perfect world, if you have provided the service you promised, your customers will pay what they promised. In many cases, people take the attitude that when there are two dollars to be made in a transaction, if you make one dollar and they make one dollar, you're both happy. Unfortunately, there are people who take the attitude that if they only make one dollar and you make one dollar, then they've lost a dollar they could have had.

When you find yourself dealing with customers like that, you can either find yourself a better class of customer or anticipate that behavior when you calculate your bid price.

I have a customer who takes a two percent discount if they pay in under 30 days. I never offered the discount, they just take it. After getting surprised once, I now adjust my price whenever I submit a bid to them.

 

[Tom Jenkins]

First, is the customer just stiffing you, or is there a dispute over function or performance? If it is a dispute, go back to the original agreements and specifications, and argue your case.

I have had some success by sending a notice of suspension of warranty. This can get some significant attention.

If there are problems, you can refuse to do further work until paid in full.

The ultimate recourse in the US is a mechanics lien. This usually gets results, but I have no idea if your country has this mechanism available. It essentially ties up the company's borrowing capacity until you are paid off, just like a lien from a bank.

You can consider litigation, but you have to weigh the cost of lawyers etc. against the amount owed. Bear in mind that a suit isn't a garauntee of success, but sometimes a customer that knows they are in the wrong will pay to avoid these expenses on their part. Again, this may not be feasible in your country.

(A lawyer once explained to me that civil law isn't a system of justice, it is a system for settling disputes.)

 

[ToolGuyFred]

Anyone has done tricks before to force the customer to pay?

A long time ago, I wrote an S5 statement list routine which moved itself to the top of memory, then wrote zeros over everything else. It was hidden within a data block and executed on a given date (a week after final payment was due).

"Of course we'll send an engineer. You will have the cheque for final payment ready, won't you? He will be instructed not to start work without the cheque."

Worked like a charm - but we did know we were dealing with poor payers before the kit was delivered. Only ever had to do it once.

 

[OZEE]

A long time ago, I wrote an S5 statement list routine which moved itself to the top of memory, then wrote zeros over everything else. It was hidden within a data block and executed on a given date (a week after final payment was due).

"Of course we'll send an engineer. You will have the cheque for final payment ready, won't you? He will be instructed not to start work without the cheque."

Worked like a charm - but we did know we were dealing with poor payers before the kit was delivered. Only ever had to do it once.

"Time bombs" can tend to backfire, though...

 

[JesperMP]

I think this whole thing has been discussed before on the forum.
I wouldnt consider a "timebomb" approach unless it was made in the full open.

Anyway, what we do with our customers is to agree payment in steps.

Down payment shall be paid + an LC (letter of credit) from an approved bank shall be provided.
Before this, no work effort will start, and no parts from subsuppliers is ordered.
This step weeds out 99% of the malicious customers.

Before shipping any equipment, the major part of the contract sum shall be paid - typically 80-90%. The customers LC must be valid until the arrival of the parts at the customer. The arrival of the parts triggers the payment of the contract sum covered by the LC.

The final part of the cntract sum is the hardest part to get. Be sure to have an exact definition of what is your scope of supply, and what conditions your equipment must meet.

Some customers require a take over test to be done.
Be sure to have this carefully defined. What shall be tested - who does what - what are the fail/pass criteria - how is it documented.

 

[nettogrisen]

We delivered a system to a customer once that refused to pay. Luckily we had installed a modem, so we just stopped the program untill they payed.

 

[ToolGuyFred]

"Time bombs" can tend to backfire, though...

Of course they can. This one was sanctioned at director level, though. "Just obeying orders."

 

[bernie_carlton]

One of our divisions has been using a monthly-changing access code for any equipment on a timed payment. The customer knows about the arrangement in advance. 'Accounts Receivable' loves it. On final payment a final permanent code is released. Very few problems. Mainly companies who didn't bother telling the operations people about the arrangement or people who can't type a number into a display.

 

[Black Jack]

I have to agree with the "find better customer" approach. Any of my customers that are slow to pay or have to be threatened in some fashion to pay the bill typically find me unavailable next time they have a project.

There are many ways to help prevent this from happening:

1. Bill by project milestones (as mentioned earlier). X% upon award, X% upon design completion, X% upon hardware delivery, X% upon software delivery, X% after commissioning. NEVER release the next phase of deliverables until the payment for the last phase is in the bank. The most money you will have to chase is the last portion after the startup.

2. Make sure to draw up a document for final acceptance. This outlines any design criteria and management checks off everything as completed and tested. This also serves to generate a final punch list for completion. After the document is signed off, any further modifications constitute a change order and additional money. (helps eliminate scope creep, some people pay their bills but keep wanting more than they originally agreed to pay for...almost as bad as not paying the bill).

3. Have a lawyer draw up a general document to be used for financial arrangements and liability for legal fees that may be necessary to compensate for costs chasing delinquent payments. Highly recommended for new or questionable customers especially on large projects. When the customer signs the document, you can have piece of mind knowing that if you have to pursue late payments or non-payment, just turn it over to the lawyer.

4. If you have a good customer that always pays late or takes some percentage off the bill for early payment, raise your prices to cover the cost on the next project.

If I have to use legal methods to pursue payment, I will never work for that customer again. I also share bad experiences with friends in the business to help keep them from running into the same situation.

 

[Mark Buskell]

I worked for a place that did a 50-25-25 plan. The first 50% down was to cover all items that would be purchased. The second 25 was a payment for when the machine was ready to ship and the last 25 was for the on-site startup and completion of the project. The last 25% was basically profit on the job and although it would hurt if we did not get paid, it wouldn't put them out of business.

 

[504bloke]

I worked for a place that did a 50-25-25 plan. The first 50% down was to cover all items that would be purchased. The second 25 was a payment for when the machine was ready to ship and the last 25 was for the on-site startup and completion of the project. The last 25% was basically profit on the job and although it would hurt if we did not get paid, it wouldn't put them out of business.

Thats how we work and any known bad paying customers or ones who mess us around get dumped.

 

[curlyandshemp]

It happens frequently that after finishing a project, and the customer gets into the production phase, and it's time for the customer to pay the rest of the contract value, then the customer refuses to pay.
What would you do to protect yourself and your investment?
Anyone has done tricks before to force the customer to pay?

We have found that in this case there are two kinds of customers, those that can't pay and those that won't. Those that can't you can work something out. Those that won't you will never see your money.

We have found too, that almost all customers who were in a hurry to get the project installed and running way ahead of schedule and payment schedule, were usually those who always were terrible payers.

Make sure jobs are priced and payments are at the point where the 5% or 10% hold back is the only payment left once commissioning is complete.

Do not deliver documentation or manuals until the holdback is the only payment due.

Ian

 

[AMAZINGAHMED]

We did a couple of tricks to get our money.
The first refusing-to-pay customer: after a certain number of production, we made the machine stop then the customer was forced to pay (he called us by phone to tell us that he has got a cheque for us:nodi: ) we took the money and sent an engineer to re-operate the machine.
The second one: I programmed a screen in the HMI to appear after a certain time to ask for serial number and put an invisible button over everything else thus the customer can't do anything except access the serial nubmer field. Needless to say, they paid our money

.

Another thing that a customer asked to have everything (software-hmi-etc...)before paying the last share or else he wouldn't pay, so i protected some functions with the know_how_protection and told him that these are built-in FCs

(he believed it).

my company also adopts the 50-25-25 but -as you know- the last 25
is the hardest.
Not all the customers refuse to pay so I think the engineer should foresee dangers to avoid them.

I should disagree about the (find a better customer) thing. I will lose projects or entire fields. I think i will deal with all customers as long as I'm more cunning than they are.