Questions

We're a small startup studio & were commissioned to develop a creative video by a corporation. We completed the work but didn't receive full payment.

Hi, 1.We took on the creative video project because it was creatively stimulating, and our team agreed that it would boost our portfolio. 2. We signed no contract (big mistake, we realize now). 3. The estimates were approved on a per minute basis as creative video projects usually work. 4. Our co-founder who acts as the account manager is in contact with just one person in the client organization. Problems: 1. Timeline issues - We were at fault with regard to the timeline. Multiple delays from our end for a variety of reasons. But the client never fully canceled the job on account of these delays. They threatened but never shut down the work completely. 2. Delivery - Work was completed in January. The first draft was delivered to our clients. But there was a problem with the length and the payment. 3.Payment or rather no payment - Till this point, we had not taken a single dollar as payment (in January). Number one reason was because we were just setting up shop and did not have all the paperwork approved. We sent out 50% of the invoice after the delivery of the first draft in January (and not for the full amount because we believed we may have to work on some review changes). 4. Estimate problem/change after delivery - Then there came the issue of the interpretation of the approval estimate. For video production based on the complexity of each project, we charge by the minute. A specific dollar per minute value was approved. We had taken approval for a maximum video length of 2 minutes 20 seconds(in an email). But the final draft was longer. However, the client refused to pay for even the length that was approved. Because we had invested so much, we agreed a massive deduction of the video length (and so the budget too) to below 1 minutes 30 seconds. 5. Recalculated Invoice - Invoice was recalculated. 50% of the newly agreed length sent out. With the agreement (via email) that the final payment would be made in April'16, once we get the information from our clients on how to get the length down to the new mutually agreed length. Even though ur work is animation. And in animation, every second counts. 6. Feedback - There was no feedback from their end, despite numerous reminders from our end. Our single point of contact, their creative manager, would reply that he will work on it/sent it by so and so date, but till date we have received no information. With their feedback pending, we cannot edit the video or complete the project. And as we do not think it is ethical to raise the final 50% of the invoice, the final work has been completed, we have not sent the invoice for the full payment. 7. However, the payment for the first invoice was made in the beginning of April'16. 8. But since then, despite multiple assurances our client has not given us the feedback that will allow us to: A) recover some of the financial investment made during production B) allow us to the work in our portfolio (this was a big motivator for us to take up this project at a price point which wad much lower than the market rate). 9.We are very unhappy with these developments, and we also understand that we were naive on multiple fronts. But now we would seek advice on what might be the best course of action to seek closure - a) get the full payment ( preferably of the originally approved length) b) ensure that our work will see the light of the day. We had explicitly reiterated that we should be able to showcase the video as part of our portfolio. Please suggest the options that we, as a small budding bootstrap and creative startup, can explore. Thank you for going through our question.

3answers

I own a software development company based in Dallas, Texas and over the years have experienced several of the issues mentioned in your post.

Never start work with a client before having a signed contract in hand. The contract is the first step to making sure that both parties understand the expectations of the project such as payment expectations, the deliverable, the project schedule.

I find it helpful to get a down payment from a client to be sure that they are "invested" in the project. If a client is unwilling to issue a payment at contract signing, then you should have more payment milestones at major points in the project such as; design review, first 10 seconds of animation etc. Frequent payment milestones will help your cash flow and will focus the project on meeting the expectations of the client where possible.

Communication throughout the project is key. When a client goes silent that is always cause for alarm. Weekly updates using online services such as Skype or Join.me are essential when working with a client that are worlds apart.

There should be few surprises regarding schedule. As the project is progresses, amended schedules should be prepared and forward to the client for discussion during your project meeting.

It may be a good idea to engage someone located near your client to attempt to contact them to discuss a settlement. Some may suggest getting a lawyer or a collection agency involved, however there most likely is some way to solve this directly to receive (perhaps partial) payment from the client.

I am available for a followup call should you have any additional questions.

Regards,

Eric Silverthorn


Answered 3 years ago

Hi,

I am a serial Entrepreneur and your story is not uncommon. In the excitement to win new business from a client and the potential revenue and credibility it would generate for the business, it is usually a hard decision to make at that moment. Of the many reasons, one reason is that it is assumed that since they are a big company, they would of course honour their commitment and the other is usually the client is under a time pressure to get the project going and asks to start the work promising that the paperwork will follow. Eric has outlined very well the precautions you should take for the future. Remember that every stumble is a lesson learnt to not repeat in the future. It is good that you learnt this early in your business rather than with a bigger client with a job worth a lot more in the future. There are some actions you could take which depends on many factors mainly with your confidence and comfort to take that action. I am listing a few of them that have got me fast results and there are many more which could be exercised if more details are known.

1. Since you dealt with an executive of the company, you could always escalate the matter higher all the way up to the top management. This usually works since the management would never want their company to be known as one who does not pay their vendors.

2. You could be cheeky and reach the head of the company and politely ask if he needed a loan and you are happy to arrange it for them since it seems they are in financial trouble as your invoices are not paid for months. This would embarrass them into paying and in the least get their attention. This has worked for me a few times.

3. You could use a bit of intimidation like I did in the email example below that got me a response in 5 mins and the payment in 3 days! Names withheld for confidentiality reasons.

Hi XXX,

You have made us work to meet a crunch deadline where my team worked relentlessly and had a sleepless night to ensure that your time commitments weren’t altered. After the entire job was done and was delivered to you, you have decided to cancel it. This certainly is in bad taste. Further, your company has also refused to pay us for the time and effort spent. As a last resort, I would request you to make the payments towards the services rendered. In the event the payment is not made, I would have no option, but to seek other means of redressal. I hope wiser counsel shall prevail.

Please note that if we do not receive a resolution to this, this will be escalated to:

Managing Director Mr. XXXXX
xxxxxx@xxxx.com


Head of marketing Mr. XXXX
xxxxxx@xxxx.com

CEO : Mr. XXXX
xxxxxx@xxxx.com

With Regards

XXXX XXXX

Of course you will also have to be wise about it and it depends on the value of your outstanding invoice. If the value is small, then it may be cheaper to let it go rather than waste many of your hours which would otherwise have been used productively to generate income from other clients. In this case, you would have to swallow your pride and live with the bad taste which I assure you will eventually be forgotten.

Also note that if you have confirmation of them giving you the go ahead over email, even in the absence of a contract, it is normally enough to prove that they are in breach of contract. However, the legal approach is expensive and lengthy and does more damage to you than to a larger company.

There are many other ways to approach this to your satisfaction and am happy to share more with you.

Good luck!

Mukesh


Answered 3 years ago

Hi there! I know it is tough to chase money especially with your own business because we feel like "money talk" is not okay. My best advice to you is to be firm! Send an invoice for the full amount. If you are feeling to push the limit a bit feel free to add a late fee. This sometimes will light a fire and give a call to action. I would also try communicating on the phone. Sometimes emails can get lost in the mix so it's best just to call them up and say "Hey we delivered your video, you owe us, now pay us." If they don't answer to either I would have your lawyer send over a letter. I would also include (if it gets to sending your lawyer a letter) that if you do not hear from them they are neglecting the project and you will be able to show the video on your site.

Moving into the future we always pay a 50% deposit on all videos we produce and the rest is given upon completion. Make sure all future projects this happens so you have money to use while you are working on the project! A contract is also always great too if you are negotiating prices and the rules of who can show/share/promote the video.

I hope this helps! If you want me to further explain some tactics I would be happy to jump on a call!


Answered 3 years ago

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