4 Freelance Writing Safeguards to Protect Your Earnings

What I’m listening to: I Don’t Wanna Lose Your Love by Santana with Los Lonely Boys

crack-graphic-1236437-1280x960I was reading Jake Poinier’s posts on both the Mode Media bankruptcy and his own experience with a client declaring bankruptcy.  It’s a lousy position to find yourself in, and it’s then that you scramble to learn all you can about avoiding what usually turns out to be a total loss of invoiced income.

And you learn. I did.

In my case, it was a magazine I’d worked with repeatedly. There were no warning signs until the day the editor wrote to me: “Just letting you know that the company has filed for Chapter 11 today. Not sure what that means for any of us, but please send your invoice over again and I’ll see if I can get it through.”

What it meant was she lost her job and I lost $400. Despite having done exactly what Jake’s post suggested, I got nothing. No wonder — the list of creditors was long and expensive. I was small change. If you don’t know already, bankruptcy proceedings start the payouts at the larger amounts and then work down as far as the cash will cover. Not sure if that’s every time, but in my case, that was the process.

Thankfully, it was only $400.

One things stood out in Jake’s recent post — there were freelancers who were owed as much as $40,000. Right there. That problem, in my opinion, lies with the writer. Jake pointed out that writers should “stop work till they get current.” Damn right.

Here are a few other safeguards you might want to start practicing, too:

Set – and adhere to – a maximum amount owed. Suppose that writer who’s owed $40K had set a threshold of $5K in outstanding invoices for one client. How much less would that loss sting right now? Set a figure right now in your brain (and on paper that you paste to your monitor) of how much you can afford to lose should that client never pay. That’s actually what you’re doing — you’re determining how much money you’ll have to walk away from.

Limit how much work you’ll do when money is still owed. Jake said it, and it bears repeating. Had that writer seen one or two unpaid invoices (or even three) and said to the client “I can’t start/complete any other projects until the invoices are paid”, that writer would be heaving a sigh of relief right now. Get in the habit of halting work until the checks/direct deposits arrive.

Get that upfront payment. Yes, even with a magazine. See, Mode Media was an online presence. Whether they call themselves a magazine or not is irrelevant. There’s no reason why a client can’t build a trust agreement by offering an upfront payment. “But magazines don’t do that,” you say. “I’d lose them as a client!” you add. And if you worked for Mode Media, today you’d be happy to have lost them, I suspect. Magazines don’t do that because writers don’t ask. Either ask or refer to points one and two of this post.

Have clear payment processes spelled out in contracts. And expect every client to sign a contract. This helps in the event that there’s a bankruptcy. It gives you proof that the work was ordered, agreed to, and that payment is expected. It may not result in full payment, but it gives you a stronger case should a bankruptcy court be deciding who they’re paying first.

Writers, have you had a client either not pay or go bankrupt?

What’s the most any one client has ever owed you?

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  • Paula Hendrickson September 20, 2016 at 10:52 am

    It happened to me once, nine years ago. It was a local upstart that lasted about a year. I found out they were folding when I received a letter from the publisher’s attorney’s office. They owed me $250. I know because I left my copy of the unpaid invoice hanging where I put copies of each invoice I send. The invoice was sent April 11, 2007 and remains there as a reminder not to count on income being mine until the check or deposit has cleared. That’s also when I learned that businesses operating on a cash basis (as declared on your income tax forms) can’t declare an unpaid invoice to be a bad debt. Argh.

    That experience probably made it easy for me to tell my former client, Late Payer, “no” to new assignments if there were any outstanding payments. If the articles were for back-to-back issues and I wasn’t too busy, I might bend the rule—knowing full well the second story would not be turned in until I’d been paid. I am not above holding my work hostage with exploitative companies like that. Sometimes freelancers need to use whatever leverage we have.

    Ever notice how some editors are so thrilled with your work they try to lump on more assignments right away? That’s why I have another rule: with first-time clients, I don’t take a new assignment/project until the first one has been paid. That also gives me time to decide if I even want to work for that client again.

    • lwidmer September 20, 2016 at 11:07 am

      I want to ask an accountant about that very thing, Paula. I get why we can’t claim an unpaid invoice — any Joe Shmoe could create an invoice and claim it as bad debt. But I wonder if the rules change should there be a bankruptcy notice? That seems like legitimate proof, though I suspect it doesn’t matter a lick.

      Great rules you live by!

      • Jake Poinier September 20, 2016 at 12:15 pm

        I’ve seen people opining on blogs that you can deduct it, but my CPA agrees with Paula–that is *not* the case if you’re a cash business.

        • lwidmer September 20, 2016 at 1:43 pm

          Thanks, Jake. I won’t pester my own CPA then. 🙂

  • Jake Poinier September 20, 2016 at 12:11 pm

    Couple of thoughts: 1) You’re on fire this week, and it’s only Tuesday! 2) I’m honored that you’ve taken my posts as a jumping-off point for analysis on the topic–thank you.

    You’ve really hit the heart of the matter that this can happen without warning. When I was at the magazine that brought me out to AZ, we knew we were having a little bit of financial trouble, but the true status was only known to the owner and CFO, both of whom were scoundrels. By the time the you-know-what hit the fan, it was too late to warn my freelancers, and everyone in that final issue got burned. For perspective, though, there were some vendors (prepress, stuff like that) in town who were on the hook for tens of thousands. Oh, and the owner fled to Mexico, one step ahead of the feds, because he hadn’t kept current on our payroll taxes, to the tune of a quarter-million bucks. I started writing a screenplay many years ago, but can’t find the file, alas.

    As far as how much money I’ll allow to be outstanding, I prefer being under $1,000 with a new client, and that’s ONLY if I’ve gotten a deposit. Clients with a track record can go higher than that, but not much.

    • lwidmer September 20, 2016 at 1:46 pm

      ~sizzle~ Ha!

      When you have something as good as your post, Jake, you want that conversation to continue. Thanks for the getting the topic going and for such a great couple of posts yourself.

      Mexico? He really ran across the border? Wow, he must have been in it up to here (hand in the air). It’s a shame you all were burned like that. It sucks that there’s no recourse for people like us other than prevention. And who can prevent that sort of meltdown?

      I’m nervous at the moment as a long-time client was just billed more-than-$1,000 (much more). I won’t exhale until that deposit comes through. They should be good for it as it’s sponsored content (already paid for), but you never know anymore.

      • Jake Poinier September 20, 2016 at 3:14 pm

        The actual situation was even more surreal. Dude weighed in the neighborhood of 400 pounds, and he and his wife were apparently jammed into a Ford Fiesta or something as they headed south, which I always thought was kind of an epic image. He fancied himself a Citizen Kane, bought up a bunch of magazines and wanted to create a publishing empire. Oh, and we had two corporate jets and two full-time pilots on staff, for a company of about 100 people. It was a frickin’ blast while it lasted–really, the only corporate job I ever loved. Till it imploded, anyway.

        • lwidmer September 21, 2016 at 9:25 am

          So you’re saying he wasn’t good at budgeting, eh? 😉

          That is surreal — two corporate jets? Why? clearly not to take it to Mexico when it all went sour. If it weren’t for people losing money and jobs, that would be hilarious!

          But the image of a big dude in a Fiesta is funny. 🙂

  • Cathy Miller September 21, 2016 at 10:51 am

    It only happened to me once, Lori, and fortunately it was only $150. In the sense of making lemonade out of lemons, in the good news department, it happened my first year of freelancing. So, great lesson learned.

    I read Jake’s post and was astounded that anyone would allow a client to be in arrears that much money. BTW, hysterical story, Jake (except for the writers losing out) about the dude’s exit to Mexico. 🙂

    I require a deposit every time, and for smaller projects ($500 or less), I require payment in full before starting. Another potential problem to look out for (especially in our niche, Lori) are mergers & acquisitions. You can have a great contract today that is gone tomorrow when the client is acquired or merged with another organization. Great stuff, Lori and Jake!

    • lwidmer September 21, 2016 at 1:31 pm

      Oh, you are so right about the M&A stuff, Cathy! That’s another area of concern. Have you had that impact you? I’ve had it happen before a project gets off the ground, but it never affected any money owed.

      • Cathy Miller September 21, 2016 at 3:29 pm

        Yes – twice. The first time, it knocked off the last quarter’s retainer fee. The second time, it cost me an 8-year contract with the company that got acquired.