Ask FreelanceSwitch: Client Communications and Incorporation
In this issue of Ask FreelanceSwitch, we look at client communication and incorporation. Ask FreelanceSwitch is a regular column here that allows us to help beginners get a grip on freelancing. If you have a question about freelancing that you want answered, send an email to askfreelanceswitch@gmail.com.
Question 1
I’m a regular reader of FreelanceSwitch which has become very valuable to me since I became a full-time freelancer. I’m currently facing a problem with a client I’d like your insight about it.
I was asked by this client to create their website last year. Since this client is not at all tech-savy, decisions took quite long to make, but we managed to get the project going. Last time I saw them – in June – the website was nearly ready to publish, but they asked me for more revisions on this project, not really being polite about it. I did make the revisions and asked them if they were okay with it. I was told that they would look at it and get back to me the following week.
I never received an answer, despite emailing and calling. I ended up sending them a letter two weeks ago, asking them if the project was still on their agenda or if we should break the contract. I had no answer. However, I learned while talking to a shared acquaintance, that they don’t want a website for their business anymore.
I’m torn between two solutions:
Should I wait for them to contact me, risking that they’ll come and ask for their website completed for the next day or that I refund the deposit they made (I made the mistake of not specifying that it was not refundable in my contract)?
Or should I send them a termination notice for our contract, risking that they ask for a refund (or worse, since the owner of this business is moody and can be aggressive and litigious)?
This project was one of my first as a freelancer and I made a big mistake, being not specific enough in my contract. I’m kind of stuck, here, and like to have an external point of view.
What I would suggest doing depends on whether you’re still owed money on this project. I try to avoid ever leaving an unpaid invoice on my records, even if it means spending more time on collections than the invoice might actually be worth. If you’re still owed money, I’d contact the client via certified mail with an invoice for work completed. Be polite about the whole thing, but be firm. If the invoice remains unpaid, you can choose whether it’s worthwhile to take it to small claims court or to turn over to a collections agency.
Just how much you should worry about that deposit depends on the specifics of your contract, but most small claims courts would say that if you completed all work as specified, your client doesn’t have grounds to request a refund of the deposit.
If the deposit you received covers the cost of the time you put into this project, I’d leave it be. You’ve made every reasonable effort to contact the client and finish the project. They’re not interested.
Question 2
Can you suggest an article that covers the best route to incorporate (LLC v. Corp, S-Corp, etc.) for tax purposes? I am an individual in California running my freelance business out of my home.
What is the most common corporation formed by freelancers?
Before I start tossing recommendations around, it’s worth noting that the majority of freelancers do not incorporate their businesses. I’m an odd duck in that I have an LLC. Part of that is because of the work it takes to create and maintain a corporation in most states: depending on just how much money you’re earning, it may be more expensive to set up a corporation, pay the yearly filing fees and hire an accountant to do your business’ taxes (I strongly recommend against doing your own taxes if you have a corporation— it will drive you crazy, even if you manage to do every step correctly).
Talk to a CPA in your state before making the leap. She’ll be able to tell you if a corporation is really going to save you money, as well as walk you through the options available in your state. Different corporate structures are available in different states, with their own special rules.
Personally, I’m fond of the LLC structure, but that’s after reading more than anyone should have to about corporate structures in the state of Maryland — not only am I not a CPA or a lawyer, but I don’t have enough experience with California business structures to offer even anecdotes about the best option.
Here are two posts that will at least get you started: Picking a Legal Form of Business and Incorporating as a Freelancer: The Questions You Need to Ask.
Leave a Comment
I also live in California and can probably offer comment on both of these questions.
#1 I think the answer is spot on. Unless you specifically stated that the deposit is refundable if the project doesn’t reach a 100% agreement on finality by both parties you shouldn’t have to worry about giving that back. I think worse than giving the money back would be the reputation you might be given by this client should you end up going to collections or becoming too aggressive. It’s very tough when you first start out (and I’ve been doing this for 5 years off and on and been full-time freelance for the last 18 months) especially if you’re in a town that talks. I live in a very close knit community in CA and tread very lightly. But that being said you sometimes have to burn those bridges and upset a group of people in the community to get what is owed to you. Once you’ve established yourself in your area this becomes a much easier thing to do.
#2 I’m not incorporated. LLC and S-Corp are the two common ones used in CA. I’m not really a qualified person to talk to on this matter so do not take my statements on this as 100% fact but I believe the main reason for an LLC over an S-Corp would be the size of your business. Since you’re doing it out of your home the S-Corp offers the better tax benefits and protection for you and your business over the LLC. If you were to hire an employee or two and move into an office, or run multiple businesses, then the LLC would be the route to go. I’ve thought about filing an S-Corp for some time but every tax season my preparer assures me that not filing is the way to go. But that depends also on the amount of income you’re generating too. So long explanation short you won’t know until you talk to a CPA as suggested!
Good Luck!
The deposit is non-refundable by default. That’s common business practice, so don’t worry about it. Especially since they seem to not want to deal with you at all to complete the project, I doubt they’ll come to you asking for the rest of the money. If after you continue to not get paid via the invoice and threats to sue and you still want the rest of that money, you can always launch the website but put a huge banner on top that says “these people refuse to pay for this lovely website I’ve designed. Please make note of their business practices if you’re considering dealing with them in the future.” As long as you keep it accurate and truthful they can’t sue you for libel, and if it gets a lot of hits (hope you did your SEO!) they’ll probably want to take it down
. Use as a last resort, though!
Clarity in your contracts can be your best friend when something like this occurs. Unfortunately, it often takes a few bumps in the road before you can truly understand your business and what is needed to protect it. It’s important to always clarify the project’s timeline, and you should include clauses about the non-refundable downpayment, time for payment, number of revisions, and the fact that they can be billed for work completed if the project extends X amount of time beyond the original timeline.
Since you didn’t include anything about collecting further payment for work completed in your question, I’ll assume that they don’t owe you anything. In that case, I would personally wait for them to initiate contact. It sounds like the business wasn’t very organized internally for this project. That shouldn’t be a problem for you unless they come back to you with unreasonable expectations, in which case I would politely use the contract as a reference point. (ie. “I wasn’t able to reach you through numerous attempts after the agreed upon project deadline. I have other projects that have been given priority in the meantime, but I’ll try to squeeze that in and will be in touch as soon as possible.”)
Hi,
Thanks for your answers. Actually, th deposit is worth 30% of the total invoice, so it doesn’t really cover the time I spent on the project. I’m going to follow your advice and send them a certified email with my invoice and see what happens.
Thanks a lot for your answers !