Freelance consulting risks – Finding clients who pay

One story

I’ve had the unfortunate experience of dealing with a handful of customers who have either gone bankrupt before being able to pay or have severely delayed outstanding payments. In one extreme situation a group of us, all independent consultants, were paying $10,000 to $15,000 per month in travel expenses and waiting an average of 4 months to get these reimbursed. Payments for services rendered also became very unpredictable. Legal action wasn’t an option because the agent managing the consultant pool had run out of operating capital and would have had no way to pay any fees that were still due. Perhaps this makes me an expert in knowing some of the risks incurred when choosing the wrong customer. Learning to make ends meet with nothing in the bank can transform you into a survival expert very quickly.

As a freelance consultant, many project roles are picked up via an agent. This means you have a middleman, an additional player who takes a share of your money-making knowledgebase. It also means there is an additional layer of excuses during detrimental legal and financial situations. Some relationships work really well via an agent. This, of course, depends on the agent. Some organisations are really professional, have clearly defined policies and payment schedules, and communicate clearly in good times and bad. Others are hopeless.

It’s a good idea to perform a credit check on prospective clients and agents to see if any judgements or disputes have been raised against them in the past. A history of non-payment or delayed payment to their suppliers should show up as a red flag on their credit profile. Don’t take these lightly. Unless they have significantly improved their operational processes to cater for previous lessons learnt, they are likely to have repeating issues with managing cash flow.

Not everybody is designed to run a business. An SAP consultant with a good connection to the end customer may be able to bring more seats onto a project, but isn’t necessarily the best person to keep the ship running smoothly. Speak to other consultants who have worked with them before. Listen to the good stories, along with the bad ones, and then make an educated decision. If you can afford long lead times before getting paid that may be something you’re comfortable with. Rather be clear about what you’re taking on, instead of being surprised when your credit card bounces upon checkout at a fancy customer-preferred five star hotel.

Sometimes working directly for the end customer is the best approach. As a freelance consultant, unless you’ve worked there as a permanent employee before or you are very lucky, you will hardly ever be in this situation. Most contract-based resourcing requirements are outsourced to at least one supplier – the agent you will soon find yourself working with. If you do find yourself in a damaging situation, try to extract as much funds owed to you as soon as possible. Evaluate the impact, be prepared to write some of it off, and get out of there. If any additional funds can be rescued it will be a bonus. Pick yourself up, find the next role and make sure you spot similar situations well in advance.

December 16, 2011 by at