The Freelancer’s Legal Guide to Making Sure Your Client Pays

You work day and night in order to meet your client’s deadline.

But when it is time to pay up, your client suddenly delays making payment.

Client work is hard but collecting from clients shouldn’t be.

In this guide, we’ll share with you your best legal options to protect yourself.

The 1st half of this guide will discuss preventing clients from not paying while the 2nd half will discuss collecting from clients that don’t want to pay.

I. PREVENTION

1. Make sure you have a written contract

Let us be clear. A common misconception among Filipinos is that if something is not in writing, it is not a contract. Remember, so long as both you and the client agree on something, even if it was purely verbal or done through a text message, email, or facebook message, that it is still a valid contract.

However, you still want to have it in writing because you can include additional terms that will protect you. Also, you cannot discount the psychological effect that signing a written contract has because some clients may be less likely to break a written contract they signed.

You can find a comprehensive freelancer contract here which includes many of the protections we discuss in this article.

2. Put an interest and/or penalty clause

One way to make your client more likely to pay is if he/she has to pay more if they don’t pay on time. You can stipulate that an interest, of say two percent (2%) per month, applies for late payments. Alternatively, you can put a penalty fee, say from Php 10,000 to Php 50,000, for late payments.

If you want to use a carrot rather than a stick, you can give a discount if your client pays earlier or on time.

3. Require a down payment before work starts

Remember that ordinarily, it is the service provider (in this case, you) who bears the risk if the client does not pay. It is because you first provide the service before you bill. The moment you render the service, clients often lack the urgency to pay because they have already received the benefit.

You solve this problem by requiring a non-refundable down payment. That way you also avoid the problem that if the client cancels the contract midway, you still get paid for the work you’ve done. You can make this even better by providing a clear payment schedule where you shall start work as soon as you are paid for previous milestones/ accomplishments.

4. Being paid in cash is best but getting a check is OK too

Have you ever wondered why landlords, banks, and other institutions often require post-dated checks? Because you can go to jail for issuing a check that “bounces” (no funds when deposited) as it is a criminal offense under the Bouncing Checks Law. Otherwise, failure to pay a debt is only considered a civil offense (meaning, you cannot go to jail). Ask to be paid in cash, but if the client says they don’t have cash on hand, ask that you receive a check at least. This will be useful in case you have to proceed with collection under Part II of this Article.

5. Retain ownership over intellectual property and/or essential files before payment

For many types of freelancer work, you as freelancer are actually in possession of important files. For creatives, most clients put value on the raw design files and assets. You can stipulate that you retain all ownership over the files you create including their intellectual property rights until you are fully paid. Otherwise, you can re-use it or sell it as you see fit.

II. COLLECTION

If you get to this point, be warned that these legal options are aggressive in nature and will almost certainly offend the client. But clients that don’t pay are not the type of clients you want to retain. When messaging the client and/or sending billing statements doesn’t work, these may be your options.

1. Send a Demand Letter

One of the first things our legal system will look for is whether you have sent a demand letter to the Client. This isn’t a polite inquiry but a definitive demand to the Client to pay a specific amount with the specific explanation why payment is due. It isn’t required but some service providers have this demand letter sent through a lawyer in the hope of intimidating the Client into paying.

You can find a template demand letter here.

2. Check your availability for Small Claims

If your claim is less than Php 400,000, you’re in luck because you don’t even need a lawyer. You can just fill out a form called the Statement of Small Claims and file it with the Court in your city or province where you stay. It should only cost around Php 2,000 to file and it is certainly a lot faster than the ordinary process as there is no need to go through trial. Just prepare all the evidences you may have such as your written contract, communications with the client, previous demand letters, billing statements, and other relevant attachments.

3. Go through the regular court process

If your claim is above Php 400,000, you will have to go the regular court process. The case you will most likely be filing is a civil case of collection of sum of money and you will almost certainly want to seek the assistance of a lawyer here. Alternatively, if you followed Part I, suggestion 4 of this Article, and the check that the Client provided bounced, you can also file a criminal case for violation of the Bouncing Checks Law.

III. Conclusion

In short, your best bet is to have a rock solid freelancer contract with your client and knowing what legal options you have to enforce that contract.

Freelancers benefit from having a bit of legal knowledge.

Atty. Raymond Rodis is one of the many lawyers you can find on Digest. Post your legal concern here on Digest and we will find you a lawyer that fits your budget and issue.

Digest is a one-stop shop for Philippine laws, lawyers, and contracts.