Checking Customer References

Potential customers may ask for references from you. This section examines why it’s wise for you to ask for references from them before you make the decision to take on a new customer. Why should you ask for references from your customer? Consider these two reasons:

Getting paid for your work
Learning how the customer treats independents

Will You Get Paid?

You need to be paid for the work that you do if you are going to stay in business. Timely payments are critical to your cash flow. Large companies usually have policies about paying their contractors, and this policy varies from “when you present the invoice” up to 90 days. In the case of an independent’s small business, a 45, 60, or 90 day wait for a paycheck could ruin your cash flow. Smaller companies may not have a payment policy. You need to be especially careful to find out how a small company plans to pay you.

Time Lag Problems

A friend who is an independent had an agreement with a company to invoice once a month for a new project. She started work on the project on January 1 and invoiced on the 31st. The company’s policy was to pay in 90 days, not from the start of work, but from the invoice date, so my friend did not get her first paycheck until early May! When you are working full time hours on one project, you may not have time or energy to take on other work, and a four month lag makes a huge impact on cash flow.

Time Lag Solutions

Ask the person in charge. Before you decide to accept a project from a new customer, ask the person in charge of the project about the payment policy. If this person does not know, ask if you can talk to someone in the financial department. Companies with nothing to hide will not mind your questions, and you need to know what you are committing to. A company with a long time lag might be willing to bend the rules for you, but you have to ask.
Ask for an up-front payment. When the time lag is long, you may need to agree on an up-front payment. On one recent project that I was going to bill in three installments, I asked for the first payment upon signing of the contract, at which time I would begin work. I included my invoice with the letter of agreement. My invoices stipulate payment within 10 days. We signed the contract, the manager approved the invoice for payment, 10 days later I had a paycheck, and immediately began work. Everyone was happy.
Check on payment policies once a year. It’s also a good idea to ask existing customers about once a year if they have changed their payment policies. The beginning of this year, one of my best customers changed from paying on invoice to paying on purchase order with a 30–day wait, without telling me. When I inquired about a late payment, I was told that they had changed their policy. Now I have a purchase order number, but I left the 10–day notice on my billing form. The secretary who handles my invoices reminded the payment office about this, and they are paying within 10 days. Nice, but they won’t do it unless you ask.
Watch small companies carefully. Be especially vigilant about small companies. If they get into financial difficulty, they may delay paying their contractors. Keep tabs on how the company is doing. If a small company goes out of business, you might never get paid.

What to Do if a Payment Is Late

Always inquire about late payments. When any payment from any customer is two days late, I call the person in charge. I’m very polite about the call: “I expected to receive a paycheck yesterday and I’m just checking to be sure you received my invoice.” Be creative about following up. Fax a new invoice if yours got "lost." Say that you will be in their office tomorrow and would be happy to pick up your paycheck. Smile while you are talking to keep a cooperative and friendly tone in your voice. Call every day until you receive payment. Remember that squeaky wheels get the grease. I call it creative nagging.

Stopping work is effective. Consider putting a clause in your contract about the right to stop work if payments are late. An action like stopping work is very effective, guaranteed to get the attention of the customer. I did it once, with a customer who I suspected was planning not to pay me. When I made the third phone call to ask about the second late payment, I reminded the customer that I would have to stop working on the project until I received a check. The customer accused me of blackmail and a few other unsavory things. I calmly held my ground, stopped working, and two days later, the check arrived. There were never any other late payments. The customer has not called me back for more work, but I did what I felt was fair.

How Does the Customer Treat Independents?

You will be a happier independent if you get answers to questions like these before you decide to work with a new customer:

What is the climate like? Do they treat independents well, or do they stick them in a closet with a 286 PC and a folding chair? Once I had a project to write documentation and training on a new software product, and the manager thought it would be a good idea to put several people working on the same project in one big room so we could be together. Have you ever tried to concentrate on writing in a metropolitan bus station? As soon as I knew enough about the system, I took my notes and files and wrote at home where it was quiet.
Does the customer micro-manage you? Customers who watch you all the time do not trust you. They believe that if they can't see you, you must not be working. Do they expect you to follow full-time hours and close supervision? If you are happy with a micro-manager, that's fine. If you are used to being treated like a fellow professional, you may want to think twice about accepting the project. Be aware also that the IRS may consider you an employee and not an independent if the customer makes all the decisions.
Are the reviewers and subject matter experts cooperative? Do they return documents on time? Do they provide useful comments, or just OK everything without reading it? Are subject matter experts available and willing to talk to you? (See Getting Reviewers to Give You Useful Reviews)
Do they pay on time? (See Will You Get Paid?)
Do they quibble about the rate you charge after you have signed an agreement? I treat comments like this as an irritation that is best ignored the first time. If a customer complains again, I treat it as a signal that something is amiss and ask what is troubling the person.
Do they demand project rates, then change the parameters of the project and expect to pay no more? Do they change the specifications mid-way through the project and expect you to eat the cost? I once did a computer based training project on a subcontract that called for an outline, first draft, customer review, revisions of the first draft, second customer review, second revisions, customer approval, and creation of camera-ready copy, all for a flat fee. Payments were scheduled after first draft, second revisions, and delivery of camera-ready copy. My first draft was so clean and accurate that the second review and second revisions were not needed. But the customer refused to make the second payment, stating that I did not do the second revision work, so did not deserve to be paid. In my opinion, that represented my profit! I will think long and hard about working for that company again on a project rate basis.

How Do You Check on Customers?

Three methods have worked for me: calling the Better Business Bureau, asking fellow STC members, and talking to the references the customer provides.

Call the Better Business Bureau. Inquire if there have been any complaints about the company. You won't get details, but if there have been several complaints, you might want to follow up with the customer before you decide to work for them. For example, let’s say a window replacement company wants you to develop a four-color marketing brochure about their process. You call the BBB and discover that the company has had 20 complaints in the past three years, seven settled to the consumer’s satisfaction, seven not settled, and six ended in dispute. Does this signal a potential problem for you? After all, if they don’t keep promises when they’re hoping to make money, why would they keep promises in situations where THEY have to pay? Is the product as good as they say it is? Are they having problems with cash flow from disputes? You have to decide.
Ask fellow STC members if they know anything about the company, the manager, or the group for whom you may work. Maybe a member works at the company that wants to hire you as a contractor. Maybe a fellow CIC SIG member did a project for the company. If your chapter members have learned the value of collaborating, they will share information with you. Carefully evaluate what anyone tells you against what you find out directly from the customer. The information shared does not always have to be negative, but collaboration can save your business and theirs.
Call the references the customer provides for you. If references do not do identical work for the customer, that’s OK. For example, if you are a technical documentation specialist, you won’t tread on the toes of a trainer or a programmer, and they may be willing to share information. Let the person know that you have talked to this customer and would appreciate some candid information about what it is like to work with them. If the person believes in collaboration, they will share what they have learned. In return, you can tell them how beneficial belonging to STC and the CIC SIG has been for you. You might even recruit a new STC member in the process! At the very least, you broaden your network of contacts about future work. If you are replacing someone on a project, you might ask the customer if you can call that person. The results could be very enlightening. On the other hand, if the company doesn’t want you to call him or her, that could be a red flag.

Once, early in my independent business career, I accepted a project with a small consulting company. The project was specified to take about one month, with a small payment up front and the rest at the end. I was to be paid at an hourly rate. Well, the project dragged on and on, with more and more content added, more and more revisions, more and more responsibilities placed on my shoulders. I dutifully submitted invoices every two weeks, but did not see a paycheck after the first one. I was “too polite and shy” to ask where the money was. When the end finally came, the president of the consulting company stated that the project was unsatisfactory and they were not going to pay me. It took almost a year of letters from lawyers, threats to go to small claims court, and nightmares to get a settlement of about 75% of what I was owed. It was an expensive lesson, but one I intend to learn only once.

I had been too naive to demand payment and discuss the changes in the project before doing all the extra work. During the legal process, I got names of several other independents who has worked previously for this company. When I contacted them, I found that each one had had horrible experiences of one sort or another. Had I asked for references up front, I might have saved myself many, many headaches.