5 Ways to Protect Yourself from Bankrupt Clients

It’s hard to say how many people are filing bankruptcy these days. Suffice to say that it’s become relatively common. As a freelancer involved with the media, I’ve been biting my nails about whether some publications will be in business long enough to pay up. If you’re in a similar situation, take note of these five steps to protect yourself:

1. Know the legalese. The same way you have to know a little French to get around Paris, it helps to know a little bit about the different types of bankruptcy filings your clients—both businesses and individuals—could make. Each type determines the way you file your claim to possibly reclaim the money owed to you:

2. Watch your accounts receivable like a hawk.
Make sure nobody falls too far behind. If you’re concerned about a client’s financial health, gently try to pry more information from them. Here are a few examples of how to do this:

3. Specify terms in your contract and invoices.
Most payments are due within 30 days of project completion. State your terms clearly at the bottom of your invoice. It not only serves as a reminder to your clients, but gives you a potentially valuable paper trail.

4. Be your own collections agency.
If your client doesn’t pay on time, be aggressive about following up. Don’t hesitate to contact them daily by phone or email if it gets bad. Threaten legal action if necessary. It’s not pretty, but you need your money. Better to pester than go hungry.

5. Prepare for the worst. It’s clichéd advice in these times, but worth repeating. If your client goes bust, and you follow all the necessary procedures, you may still end up with a stack of legal documents on your desk, and little else. Like Clint Eastwood said, “Hope for the best, and prepare for the worst.” If you can’t afford a lawyer, at least make sure you can afford to see yourself through until the next gig.

  • Dean

    “2. Watch your accounts payable like a hawk” … don’t you mean accounts receivable? Not that you shouldn’t watch your payables too.

  • Drea

    Dean–Oops, you got it. I did mean receivable. I believe I wrote this post with credit card debt on the brain. Thanks for pointing that out.

  • Jan Simposn

    Nice posts – however bankruptcy can happen at anytime to anyone or company. Yes knowing the legalease would be great – and helpful. However, if your speciality is in that industry you normally know what is going on with the company.

    Calling daily isn’t going to help. If they have the monies – they will pay at some point. I would go in person – and I would stop all work until I got paid. If this is product – well you need to ensure that nothing gets installed until payment is received. My attitude is, I am nnot a collection agency, I am expensive, the companies I do business for expect payment when they perform a service or sell a product – so do I –

    I don’t work for free – and I don’t extend credit – to anyone. My work is superior and gets results – so pay in advance or go somewhere else –

    Don’t play with your business by extending credit – you are not a bank – and neither are they – if they can’t pay – tell them to save their monies – you aren’t passing up a client – you are passing up heartache.

    Just my humble opinion.


  • Great resource! Good easy to apply steps. Your writing style is short, easy to process, and relevant! Thanks!

    Jared Lyda