Entrepreneurship & Small Business

Start up client can't pay at all. Is continuing work for them the only option?

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  • Aug 22nd, 2014 7:21 pm
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[OP]
Jr. Member
Apr 27, 2008
112 posts

Start up client can't pay at all. Is continuing work for them the only option?

Hey guys

My team and I have been working for a client that's an incorporated start up company owned by several founders. The client stopped paying us because they ran out of money. So right now, they owe use $80k CAD. I've already paid my team (salaried employees and sub-contractors) $55k for doing the work. So to me, it sucks because I basically just dug myself into a hole, and the client can't help me out.

I talked to the client and told them if they don't pay, then I'll have to find a 3rd party such as a collection agency or lawyer to resolve the situation. The client told me I can do that, and of course I'd win the legal case because we all agree on the amount owed. But nothing good would come of it because they still have no assets/money to pay.

The client then said it is in my best interest to keep working for them to help their company get off the ground. Only if the company starts making money can they pay me the $80k CAD. In the meantime, they'll pay enough to at least make sure the debt doesn't accumulate.

So if the client really has no assets at all, does that mean the only hope of me ever seeing even a single penny of that $80k is to continue to work for them?

** I won't get into the details of how this $80k accumulated...suffice to say, these clients were great clients for 2 years always paying ahead of time. Then this stupid situation happened.
19 replies
Sr. Member
Feb 27, 2005
590 posts
21 upvotes
You're getting conned, pure and simple. I can guarantee you this is not the first time he has done this to a vendor. Cut your loss and walk away. Hopefully the money you made in the first 2 years were enough to cover your loss.
Deal Addict
Jul 7, 2004
4988 posts
720 upvotes
How do you do so much work without getting paid?
I wouldn't do sh*t or give him sh*t.
Bet he has a nice house and still drives a nice car.

What on earth could anyone need done that costs $130k?
[OP]
Jr. Member
Apr 27, 2008
112 posts
climacus wrote:
Aug 11th, 2014 10:59 pm
You're getting conned, pure and simple. I can guarantee you this is not the first time he has done this to a vendor. Cut your loss and walk away. Hopefully the money you made in the first 2 years were enough to cover your loss.
Thanks Climacus. So when you suggest I cut my loss, you mean I should just accept that the $80k is gone forever? I can't even recover $55k , money I took out of my own pocket to pay my team? If that's the case...needless to say, i feel so terrible working myself into this massive debt, and putting so much trust into people.

What if I find a way to guarantee that the client doesn't owe me any more money in this final month? That the client can at least cover this remaining month of development before the business launch? Should we help them at least for one more month so that at least they have a chance of selling their product and services?

EDIT - Ooh, in the first two years there was only about $70k revenue from this client. SO basically if i walk away now, I come out negative on this client account.

I know I managed this project extremely poorly.......I know i should have been more strict on collecting payments...but..yeah i konw i'm stupid...
Sr. Member
Jul 10, 2005
754 posts
121 upvotes
Toronto
Stop working immediately, take anything that's legally yours (intellectual property, etc) and lawyer up.
You can't collect now because they are not generating revenue, but once you win the legal case they will have two options: keep pushing ahead so eventually they WILL get revenue you can collect on, or dissolve the corporation and loose everything THEY have invested in it until now.
Newbie
Jul 23, 2014
37 posts
5 upvotes
Toronto, ON
Cut your losses- dont llet them squeeze another penny out of you- It is amazing how some people can bring themselves to telll you outright after sinking your money. I hate to say this- but if you didnt get any of the directors to sign a personal guarantee, the chances of seeing that money is very small. Best you can do is to join forces with other creditors of the company- ideally stronger or bigger corporations to come together to take action rather than on your own. They will have the resources and experience to figure out if this is worth any effort- If you were the sole service provider I am afraid there is little you can do- as an unsecured debt there is little you can do to enforce they pay.

Last resort is debt collection agencies- you only get paid if they recoup- some may buy the debt off you at a few cents to the dollar if you are in luck. It always hurts more when what you provided is a service. But dont even think of putting in another minute for them. Wind up the relation in this manner- There is little I Can do to continue to work without pay as my staff need to be paid on time. If the person you are dealing with or the accounts team had any decency they would have suggested a payment plan- if they havent suggest one- Example $300 per week until they can afford more. But let me reiterate dont work for them not a minute- Something is better than nothing- although I understand it is difficult for you to come to this conclusion as yet.
Deal Addict
May 26, 2011
1801 posts
468 upvotes
Vancouver
Contact a lawyer. The cost of a lawyer's opinion will be peanuts compared to the amount owing.

You mentioned that the client has no assets or money to pay you. Do you know that for a fact, or are you taking their word for it? Keep in mind it is highly likely that they are lying.
johnlai2004 wrote:
Aug 11th, 2014 11:07 pm
Should we help them at least for one more month
If they're conning you, and it's highly likely that they are, you'll never see the money. The oldest trick in the book is to keep promising your creditors that you'll have the money "soon". Once the development is complete and the business is launched, you'll never hear from them again.

If they're not conning you and they're just spectacularly bad at business, you'll still never see the money.

What kind of product have you developed for them? Is it something digital like software that you can withhold until payment is received? If it's something physical, can you repossess it?
kiwibloke wrote:get any of the directors to sign a personal guarantee
Good advice for next time.
Sr. Member
Jul 10, 2005
754 posts
121 upvotes
Toronto
If YOUR skill is what can take them from 0 to revenue, then YOU should be the one pressuring them, not the other way around. They should be wining and dining you, offering you their car or any asset they have at their disposal to entice you to bring them to the point of revenue.

Tell them you can gladly do the last mile if partners sign personally and jointly for the whole bill. Current and projected.
[OP]
Jr. Member
Apr 27, 2008
112 posts
PianoGuy wrote:
Aug 12th, 2014 12:02 am
Contact a lawyer. The cost of a lawyer's opinion will be peanuts compared to the amount owing.

You mentioned that the client has no assets or money to pay you. Do you know that for a fact, or are you taking their word for it? Keep in mind it is highly likely that they are lying.


If they're conning you, and it's highly likely that they are, you'll never see the money. The oldest trick in the book is to keep promising your creditors that you'll have the money "soon". Once the development is complete and the business is launched, you'll never hear from them again.

If they're not conning you and they're just spectacularly bad at business, you'll still never see the money.

What kind of product have you developed for them? Is it something digital like software that you can withhold until payment is received? If it's something physical, can you repossess it?



Good advice for next time.

Thanks PianoGuy. We built a web software for them ( I don't want to state specifics publicly) and it sits on their server. They have access to everything. However, the technology will be useless to them until they hire a new software company and for us to train their new team on how to support it. I don't want to repossess anything because they might say, "oh great, you repossessed the work which means we don't need to pay for it because we don't want it anymore. We are going to go ahead with version2 REBUILD, which you helped us fully spec out and created a project plan for already."

I only suspect the client has no assets, i don't know for sure. I'm in the process of finding a lawyer right now, although it seems their slow to responding to my inquiries...
[OP]
Jr. Member
Apr 27, 2008
112 posts
dani_toronto wrote:
Aug 12th, 2014 12:16 am
If YOUR skill is what can take them from 0 to revenue, then YOU should be the one pressuring them, not the other way around. They should be wining and dining you, offering you their car or any asset they have at their disposal to entice you to bring them to the point of revenue.

Tell them you can gladly do the last mile if partners sign personally and jointly for the whole bill. Current and projected.
Thanks dani_toronto. I just replied to PianoGuy with a bit more details.

This client has experienced plenty of delays and unexpected difficulties not related to our work. So they are accustomed to "delays". I say this because they're already sourcing another vendor to complete the work we started. So if our departure only stalls them for another 3-4 months, it doesn't really break them.

But you make a good suggestion about getting them to sign a personall gaurantee. I'm going to start that dialogue right now!
Deal Addict
User avatar
Mar 23, 2008
3844 posts
327 upvotes
Toronto
johnlai2004 wrote:
Aug 11th, 2014 10:44 pm
Hey guys

My team and I have been working for a client that's an incorporated start up company owned by several founders. The client stopped paying us because they ran out of money. So right now, they owe use $80k CAD. I've already paid my team (salaried employees and sub-contractors) $55k for doing the work. So to me, it sucks because I basically just dug myself into a hole, and the client can't help me out.

I talked to the client and told them if they don't pay, then I'll have to find a 3rd party such as a collection agency or lawyer to resolve the situation. The client told me I can do that, and of course I'd win the legal case because we all agree on the amount owed. But nothing good would come of it because they still have no assets/money to pay.

The client then said it is in my best interest to keep working for them to help their company get off the ground. Only if the company starts making money can they pay me the $80k CAD. In the meantime, they'll pay enough to at least make sure the debt doesn't accumulate.

So if the client really has no assets at all, does that mean the only hope of me ever seeing even a single penny of that $80k is to continue to work for them?

** I won't get into the details of how this $80k accumulated...suffice to say, these clients were great clients for 2 years always paying ahead of time. Then this stupid situation happened.
OP, I can relate. I am in a similar situation as you but I am owed a substantially lesser amount of 28k.

First things first, cease all work asap. You're only going to get into more and more debt, especially from a corporation that has no assets and no viable means to pay the debt off.

Second step is to pull their credit report from equifax and see how well their financial health is. It's probably bad. You can see how many accounts are in collections, and judgements from the courts, etc.

Third is to contact a lawyer as well as a collection agency to proceed with debt collection asap. Unfortunately for you if it does go to the courts you will have to pay dearly for a lawyer. I consulted a lawyer for my 28k that is owed and the lawyer admitted to me that it would be cheaper to just sue for 25k and go with small claims because the limit for small claims is 25k. The collection agency will take care of trials, doing land registry searches, getting judgements, etc. In your case, I wouldn't be surprised if the lawyer costs is around 5-10k. Nevertheless, be prepared to lose around 30% for the collection agency alone.

Please also Pm me as I would hope to share and learn from each other on how to recover such debts. I am in the same boat as you. This is a TERRIBLE situation for us small businesses and sometimes it's hard to predict it from coming. My client who owes me 28k was also paying on time for the last few years and then got into financial trouble.
Deal Expert
Oct 6, 2005
16498 posts
2161 upvotes
johnlai2004 wrote:
Aug 12th, 2014 12:24 am
I say this because they're already sourcing another vendor to complete the work we started. So if our departure only stalls them for another 3-4 months, it doesn't really break them.

But you make a good suggestion about getting them to sign a personall gaurantee. I'm going to start that dialogue right now!
What good is a personal guarantee if they won't pay it out ... Retrieve all of your assets, cease work immediately, and call a lawyer - you've been swindled.

johnlai2004 wrote:
Aug 12th, 2014 12:21 am
Thanks PianoGuy. We built a web software for them ( I don't want to state specifics publicly) and it sits on their server. They have access to everything. However, the technology will be useless to them until they hire a new software company and for us to train their new team on how to support it. I don't want to repossess anything because they might say, "oh great, you repossessed the work which means we don't need to pay for it because we don't want it anymore. We are going to go ahead with version2 REBUILD, which you helped us fully spec out and created a project plan for already."
What does your services agreement say in regards to ownership and intellectual property?

Also, what happened to the concept of billing milestones - were you not billing the client at regular intervals?
Sr. Member
Jul 10, 2005
754 posts
121 upvotes
Toronto
johnlai2004 wrote:
Aug 12th, 2014 12:21 am
the technology will be useless to them until they hire a new software company and for us to train their new team on how to support it.
They want YOU to train the replacements they brought in after you left for lack of payment?

That's rich....
[OP]
Jr. Member
Apr 27, 2008
112 posts
coolspot wrote:
Aug 12th, 2014 2:18 am
What good is a personal guarantee if they won't pay it out ... Retrieve all of your assets, cease work immediately, and call a lawyer - you've been swindled.




What does your services agreement say in regards to ownership and intellectual property?

Also, what happened to the concept of billing milestones - were you not billing the client at regular intervals?
Hey coolspot, We did send invoice monthly. But towards the last 3 months, the client stopped paying. I didn't think anything of it at the time because in previous years, the client would have paid "ahead" of time and they seemed like nice people. But about 2 months after our last unpaid invoice (or 5 months after the first unpaid invoice), they client told us they had financial issues and couldn't pay. And for the past 6 months, they've never told us anything concrete on how to resolve this balance. Although they agree to the debt, they would just dance around the subject when I try to get them to give me a concrete plan. I just sent them an email today stating it can't continue like this. We never had a service agreement before (i know ikonw, this is really bad). But now i'm saying we need one that clearly dictates what happens if payment is not made. And also to state what they intend to do to avoid just closing up shop and leaving balances unsettled.
[OP]
Jr. Member
Apr 27, 2008
112 posts
dani_toronto wrote:
Aug 12th, 2014 2:20 am
They want YOU to train the replacements they brought in after you left for lack of payment?

That's rich....
Yup. They say they want us to ensure this transition between us to another vendor goes as smoothly as possible. I've noticed over the years the client feels entitled to many things, some of which seem unreasonable or goes against common sense....

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