Collecting final payments from clients who disappear without making full payment?

Question

How to collect final payments from users who run away after taking the product and paying only half?

What is a proven model or method to release product by parts and secure final part of the payments?

All of our past projects we have the following payment method regardless of the project type. We work on three types:- 1. web including websites 2. desktop based tools, softwares etc 3. others

1. Collection of requirements via authorized emails
2. One to one vidoe/audio chat
3. Issue quotation & contract
4. Advance payment (usually 1/3 of total quote) collection along signed contract
5. Release payment acknowledgement papers with confirmed contract
6. Send a video of full product OR present or send prototype with 1 main function without database connectivity for most web portal & desktop based applications - if a db is required for application
7. User acceptance of prototype - collection of signed papers & 2nd portion of payment
8. Demo the final product. Provide user guides. Functional Specs and other relevant files.
9. Collection of final payment. Release full produtct. Collection of sign off papers.
10. Give 1 week time to user to get back on any minor modifications : free of charge, but user has to fill up a form for modifications.

Most of the time certain remote clients have refused to pay the final payment, even after seeing the full product or accepting prototype. They want the full product before paying.

e.g. People purchase online just by looking at an image. There's no fuss when they make that payment and to receive the goods later. So why can't the same go for freelacing products specially after seeing the full product demo or a prototype?

If you can suggest a better payment collection, product release model then that would be great.

Answer 1

I'm gonna assume you mean web development and related work.

1. Don't put any work on your client's servers until it's completely paid for. No matter how much they beg, plead, or try to make you feel guilty, don't do it.
2. If it's possible, it's an even better idea if you don't let them access the work except through a remote desktop situation, so nobody can steal any content.

Answer 2

To add to codenoire. He talked only about the securing your sources, not about payment.

For secure payment you can use several methods:

1. Milestones
2. Weekly or bi-weekly payments by counting work hours spent on specific set of tickets
3. Loading money to some escrow service

Answer 3

In my 10 years freelancing I've found the best ways to avoid this are:

• be clear on payment arrangement to start, leaving no vague areas. Hourly with timesheets, monthly, project based.
• be clear on when payment is expected, exactly, before you start. Don't just assume when you finish it you'll be paid, state it clearly in an email with confirmation.
• Get paid ongoingly, or milestones, so the final payment is not the majority part. Half up front, half on finish. Or divided monthly. I never go over a month without a milestone payment.
• always send a formal invoice the day of a milestone or month is reached. Don't delay it days or weeks.

If payment isn't received:

• for short term, remind. But eventually you'll need to stop working until caught up.
• if final payment, remind on increments. 10 days, 20, 30. Formal invoices and certified mail if needed.
• final recourse is small claims court with documentation of payment schedule and confirmation of completed work. most people don't let it get that far.

Note: you can protect the work you've done for payment, but you can't do anything to harm their website or business as retaliation, or you'll end up in trouble.

Answer 4

There are several key considerations here.

Risks. Getting into any financial affair is accompanied with certain risks. These risks are mutual; it is theoretically possible that contractor runs away with the advance payment or the client runs away before paying the final payment.

Trust. Your goal is to build trustful relations so that the risks went away. There are many proven ways to do that:

• Take small tasks first. If a small task gets off the hook, the parties minimize their losses;
• Scheduling. When you get to bigger tasks, make sure they are scheduled into smaller chunks. Ensure you have three key things defined well:
  • Scope — what to be done;
  • Timeline — when to be done;
  • Cost — how much to be paid;
• Get familiar with the one you are working with. The best way to know your partner is getting out from some problem situation. Of course, don't make such situation, but if it occasionally happens, look carefully and expect they will look at you as well;
• Use secure payments systems. Most of freelancers' Web sites have kind of escrow system that withdraw payment from the task owner and let them be released to the contractor as soon as the task is completed. In case if the task owner refuses to release money, the dispute service will review the case and decide how to proceed. You may assume escrow services take significant interest, kind of 10%;
• In order to employ the dispute system, make sure you keep the key communication and all key artifacts via the escrow system. It would be unable to help you if there were no communication recorded.

Having everything above in place, you will eliminate most risks, build trustful relationship with clients, and finally you will be able to concentrate on your work, not on the risks.