The mark of a successful one-person business is the ability to survive and thrive.
Survival comes before thriving, and money (namely income) is the life blood of a one-person business. Without it, you’re done and you’re back to the dreaded 9-5.
If you’re not making money, you’re not surviving.
In other words …
If you’re not making money, you have a hobby, not a business.
When I started working for myself over 15 years ago as a freelancer I would get paid quickly after completing a job – within a couple weeks. These jobs were usually low ticket projects, in the range of $500-$1,000 and were based on informal agreements, usually done verbally or in a casual handshake like manner.
Again, nothing formal. No paperwork. Just a good old fashioned – I do X you pay me Y and we go on our way.
This works, for a lot of people for a long time, and it did for me to …
… until it it didn’t.
This happens to most freelancers who are early in the stages of freelancing mastery, often in the first two stages – beginner and practitioner.
Relying on Informal Agreements is a Dumb Idea
Informal agreements, while easy to easy up are not optimal for a one-person business where the life blood of the business (money) is dependent upon a handshake agreement. It’s a reliable way to ensure short term failure when large payments which you depend on are on the line.
I’ve run into this a number of times, one such incident stands out that was the catalyst for solidifying my current belief system.
I had a one month contract to help build a mobile application for a client. I had hired a subcontractor to help with the development of the application. At the end of the month one I submitted an invoice. Eventually the invoice became past due and the client stopped responding to my emails and calls. If you’re reading this, you’ve likely encountered the same thing before.
Fortunately, I had an official signed contract in place for the work (contract is below), not an informal agreement. This contract included payment terms, payment clauses and much more.
3.1 Consulting Fee: Company agrees to pay Consultant [Hourly Rate / Flat Fee] as described in the applicable SOW.
and
4.1 Compensation Consulting Fee:
The Company shall be invoiced monthly in advance and payment of each Consulting Fee shall be due within thirty (30) calendar days after the date of invoice (“Payment Date”).
These clauses along with the helpful nudge of my lawyer (email below) ensured I got paid.
The fastest way to get burned is to not have a contract in place.
You Need Formal Contracts In Place for Everything that’s Financial
Friendships, families and relationships are torn apart by informal agreements about business, finances, etc. These problems stem from individuals developing covert contracts for various situations.
A covert contract is an unspoken agreement you have within your head between you and somebody else.
This applies to all One-person businesses too.
You expect X to happen with person Y based upon what you think, yet there’s no formal agreement in place stating that. It was an agreement made over dinner, with a few drinks involved. You felt it was a solid agreement, the other person didn’t see it that way. You do the work, and then they don’t pay for whatever reason and now you’re stuck holding an empty bag.
This happens all the time, don’t let it happen to you. It can ruin your business and potentially your life if you’re operating at a full-time level as a one-person business, especially in freelancing and consulting.
Contracts apply to all types of business. Even when dealing with another company, they often ask that you sign a contract for various purposes and those contracts contain stipulations of when you’re going to pay them, and how much.
For example, formal contracts are required all the time in enterprise software sales. Enterprise sales is very high touch as it requires agreements for SLA’s (service level agreements), payment terms and more. This is all to protect both sides from bad actors on either side.
A One-person business without a contract in place for payment is like walking on ice: sometimes it works well, often it does not.
“F*ck You, Pay Me”
That statement is a core tenant in my One-person business belief system.
If I do the work, and we have a signed contract, when I complete said work and submit my invoice, pay me by the due date.
If a client doesn’t pay, my contract is my insurance agent for getting paid.
Creating a Contract
If you don’t have a solid contract, below is a AI prompt that you can use to help generate a contract that will help protect you in some areas and jurisdictions. Unfortunately, AI is not deterministic so the result you get will vary from the one I got, if you want a rock solid contract thats been used to secure over 10 Million in sales then get it here.
Prompt:
You are a legal expert who is responsible for crafting legal documents that ensure your clients get paid on time for their freelancing and consulting roles.
Create a independent contractor agreement that contains the following sections and subsections:
- Recitals (which defines the company and the Consultant/Freelancer/Contractor roles)
- Agreement, which includes the following sections:
- Scope of Engagement
- Terms of Agreement and Termination
- Compensation with Consulting Fee
- Independent Contractor Status
- Intellectual Property Rights (company owns the intellectual property)
- Limits, Liability and Indemnification
- Governing Law (with a place holder for the state and/or country in which the agreement is executed)
- Attorneys fees and costs (prevailing party shall be entitled to collect reasonable attorneys fees)
- SOW (Statment of work)
- Signature lines for Company and Consultant/Freelancer/Contractor with Name, Title, Address and space for signature. While not perfect, the output from the prompt above will be much better than no contract at all.
When dealing with money though, I want something rock solid. AI generated contracts suffer from the Dunning-Kruger effect:
You don’t know what you don’t know.
In other words, we’re not sure if AI has all the bases covered when it comes to generating a contract that I’m putting my financial security into. That’s a bit too risky for me.
If you want something that you know will work, I don’t blame you.
You can use my exact contract that I’ve used for the last 15+ years.
I spent $2,500 getting this contract custom developed for my independent consulting and business. It was written and developed by a technology focused law firm who specializes in this type of work.
This contract has secured over 10 million dollars in independent contracts over the last 15 years (between myself and a hand selected group of my mentees).
I know it works, and it works well. I still use it to this day.
Get the exact 7-Figure consulting contract that I use here.
Getting Paid When Clients Stop Responding
When a client stops responding, and you have a solid contract in place, its often time to get your lawyer involved to send them a strong worded email.
Here’s an example of an email my lawyer sent to the company executives, HR and finance team regarding non-payment of an overdue invoice from the example above:
Re: Outstanding Invoice – ABC Consulting
To Whom It May Concern:
Please be advised that this firm represents Donn Felker and his company, ABC Consulting (“ABC”). The attached invoice was submitted by my client to <Some Company> on <Some Date>. Pursuant to paragraphs 7 & 8 of the agreement between ABC and <Some Company> (the “Agreement”), ABC is to be paid monthly, within 15 days of receiving ABC’s invoice. Unfortunately, <Some Company> has not held up their end of the Agreement, and payment is now 42 days late and counting. If full payment is not received by <Some Date in the Future>, I will advise my client to consider initiating litigation in an attempt to collect upon this outstanding debt.
The legal matters discussed herein are of a serious nature and may result in litigation
being initiated against <Some Company> without further notice; govern yourself accordingly.
Sincerely,
SOME LAW FIRM PLC
<Signature of Lawyer>
<Lawyer Name Here>98% of the time this email will initiate quick payment from any company. Nearly all companies do not want to be involved in any form of litigation.
It’s important to note that you will have to spend money here, and you need to justify this cost. For example. this letter from my lawyer cost me $200. However it was for an invoice that was for around $20,000.
I decided to spend $200 to get $20,000. That’s much better than being cheap and spending $0 to get $0.
Ways to Prevent Problems with Risky Clients
While contract will ensure you get paid, it assumes the client has the funds to pay you. There are situations where contracts wont help you though, such as with clients that are high risk that simply don’t have the funds or have the high likelihood to run low on funds. I typically avoid these clients as I find them too risky, but your mileage may vary.
These types of business include, but are not limited to:
- Self Funded Startups
- Other Contractors
- Businesses with Limited funds
- Family/Friends/etc
To mitigate the risk of not getting paid in these scenarios you can use utilize some of the following tactics, while also implementing a contract:
- Half Down: The client pays half the agreed upon contract up front and then pays the other half when you finish the project.
- Escrow: The client places the funds into an escrow so that you can see that the funds do exist. Funds are released upon completion of the project.
- Discovery Phases: Use a paid discovery phase (1 day to a week) to help flesh out larger project and break them into smaller deliverables that are faster to implement and have less risk when submitting invoices.
- Deliverable Phases: This is related to discovery phases. When you have various phases of a project are deliverable, implement that phase, get paid, and then start the next phase. You don’t start the next phase until payment is made.
Nuances with Getting Paid
A few last things to note …
- Nothing here is fool proof and guaranteed.
- These tactics eliminate the tire kickers and time wasters
- A contract is only as good as it’s written
If you have any questions, please feel free to send me a message on any social platform (X, IG, LinkedIn) and I’ll help you.