Reply to: Client will only pay if their clients have paid - contract

[Taita]

It seems to me that there is a fair amount of potential for messing you about. How will you know if the end client has paid (i.e. how will you know if you are being fed a load of crap when you don't get paid)?

I'd see if you can get firm payment terms from your client. If you can't, it may just be worth the risk to get some contracting experience under your belt. I have to say I wouldn't do it myself.

Best of luck.

A good reply! Unless they are a well established, well known consultancy with a reputation to lose, you may not easily discover/know when/if they have been paid.

Alternatively, if the end client is Public Sector your client will probably be paid 30 days (or less) from date of invoice but they may then take a week or two to pay you ( no deliberate delay but normal accounts system speed). Ask for some reassurance in the first instance. If they contract many contractors they are probably keen to keep them relatively happy.

If the end client is Private Sector then your client may have agreed to up to 60 days credit which would be a problem for you. Smile nicely, assume they are good guys and ask some direct questions! You may be very pleasantly surprised. Clients/Agents are not necessarily always out to get you......

[moggy]

It was more the comment of 'payslips'. That sounds more like permie speak.

Who is this.. and what have you done with the real NLUK??

[d000hg]

Welcome to contracting. Things are different now, you'll be exposed to such risks.

Risks, yes. Not getting paid as a condition in your contract, absolutely not. You are due to be paid for work you do, not dependent if the client has a good month.

[Safe Collections]

Never, unless I was absolutely desperate.

In essence, what this clause means is, they will pay you if and when they feel like it.

This.

My point is weigh up the risks and try to negate those, such as better payment terms, a higher rate, use of an agency or payment factoring and go from there.

Great idea, if you can reduce your payment terms, you reduce your risk and this can go some way to negating the negatives of a "we pay when we get paid" clause. But only if they pay on time...

Hi,
You might want to take a look at debt factoring. There are companies that will pay you on invoices raised and handle the longer payment terms from your client. Once you have an idea of how much it will cost you to factor the invoices increase your rate to cover that cost if they won't handle that increase then walk. Either way don't be a free bank for larger clients

Invoice/debt factoring is not a magic bullet. In the event that an invoice you have factored goes unpaid you can expect the factoring company to go at the client with extreme prejudice until they get their money and if that doesn't work, they just take the funds back from your company and you are left with the task of collection.

[bobspud]

Hi,
You might want to take a look at debt factoring. There are companies that will pay you on invoices raised and handle the longer payment terms from your client. Once you have an idea of how much it will cost you to factor the invoices increase your rate to cover that cost if they won't handle that increase then walk. Either way don't be a free bank for larger clients

[JoJoGabor]

I too am working for a consultancy right now with, shall we say a cash flow problem. Their credit rating is zero and when I was contracting direct I had no end of payment problems, at one point was owed over £30k. I have received all that money and now go through an agency who now take the brunt of getting paid late, I am fine now and get paid a week In arrears. Many people advised me to leave, but in hindsight it's worked out ok-Ish this time and the rate is fantastic.

My point is weigh up the risks and try to negate those, such as better payment terms, a higher rate, use of an agency or payment factoring and go from there.

[borderreiver]

Back to the main point. Is this clause too much of a risk? Would YOU accept this?

Never, unless I was absolutely desperate.

In essence, what this clause means is, they will pay you if and when they feel like it.

[VectraMan]

The business has been around since the 90's and have always made use of contractors but it's a tough market, they aren't a big player and I think they are nervous about getting paid late (or not at all) from a big client and having to pay all of the contractor invoices. They aren't big enough to absorb those sort of costs.

They're obviously going to charge their client more than they pay you. So they're getting all the profit, and transferring all the risk onto you.

In the event of the dispute, you can bet their costs will come first. All they have to do is settle for the amount that covers their cost, and because they know they don't have to pay their contractors, they don't lose anything.

It's quite a clever way to run a business. You just need a ready supply of idiots to make it work.

[Wanderer]

Oh I see. Let me rephrase that. "Paid invoices"

That's better. Now mind your P's and Q's or the permie-speak police will bite you again.

[Zippy]

It seems to me that there is a fair amount of potential for messing you about. How will you know if the end client has paid (i.e. how will you know if you are being fed a load of crap when you don't get paid)?

I'd see if you can get firm payment terms from your client. If you can't, it may just be worth the risk to get some contracting experience under your belt. I have to say I wouldn't do it myself.

Best of luck.

[TheFaQQer]

Is this clause too much of a risk?

Possibly. Depends on whether you think that their clients are going to refuse to pay or not. I've seen quite a few disputes between consultancy and client (including one where they knocked £3million off the bill) - the bigger the project, the more likely the argument.

What happens if they pay part of the bill, but not all of it? Are the consultancy billing your time individually, so it's clear that your time is being paid but someone else's isn't being paid by the client? Are there any penalty clauses in the consultancy-client contract which might mean that the client doesn't have to pay? I did an implementation a long time back where the penalty clause between client and consultancy was £1 million a month for late delivery.

Would YOU accept this?

Possibly, but I doubt it. If the role was something fantastic, and I thought the risk was very low, then I might. It also depends on who the consultancy are - some may have a different reputation than others when considering whether their clients pay or not.

I think more than 50% of their staff are contractors so they are looking for some protection should a large customer do the dirty.

The chances of a customer doing the dirty might be low. The chances of a customer having a legitimate claim for reducing their bills may be high.

On the plus side, it shows taking a risk which could help your IR35 status.

[BolshieBastard]

Welcome to contracting. Things are different now, you'll be exposed to such risks.

Let's be honest though, most people switching from perm to contracting dont have a warchest never mind a big one.

This isnt a problem if you can live on minimal drawings from your co until you build the warchest up. A word of warning though, in this market you may find your warchest goes down as quickly as it goes up!

Starting in contracting now is a lot harder than when I started out. then, 26 week contracts were the norm. Now, 13 weeks is standard.

As for using the term 'payslip,' so what? if you've just come from a permie background i dont see the big deal.

Bottom line is you have to make a decision to go with such terms in a contract. Im fortunate in that I can be a little more choosey although that's backfired on me this year. Ho hum! No one can tell you what to do, only you know whether you can extend 2.5 months without payment to 3.5 maybe 4.

If you cant get the clause removed, you're options are to agree to it or decline the contract. But, if your reserves are low now, what difference is it going to make?

[sc0rmful]

Back to the main point. Is this clause too much of a risk? Would YOU accept this? Are they being unreasonable. I think more than 50% of their staff are contractors so they are looking for some protection should a large customer do the dirty.

[sc0rmful]

It was more the comment of 'payslips'. That sounds more like permie speak.

Oh I see. Let me rephrase that. "Paid invoices"

[northernladuk]

I really do understand, I'm just trying to work out if the risk is worth it. I will be starting out with 2 months of savings. Everyone has to start somewhere and I think 2 months savings is on the low end. Given the volatility of contracting and the big red flag in my contract, I'm trying to figure out if the risk is worth it.

I understand that contracts could end at any point in time (very short notice period) and you have to be prepared for this inevitability.

It was more the comment of 'payslips'. That sounds more like permie speak.