Entrepreneur Beginners Guide
“Prepayment Is King; Disregard Standard Payment Terms”
Lack of money is the root of all evil. —George Bernard Shaw, Irish playwright; cofounder, London School of Economics
Recent court documents reveal the cofounder of Facebook’s frustration with a client who failed to pay him for his computer programming services in 2004. At the time, Mark Zuckerberg was still a computer science major at Harvard. He wrote in January 2004, “I contracted out my services for money, and even though I seem to continually be providing services, I don’t seem to be receiving money from you guys.” The client was a man named Paul Ceglia. Ceglia later replied in February, “I will do my best to try to raise the cash needed to pay the amount requested though I honestly cannot guarantee it.” When this reply was sent, Ceglia owed Zuckerberg $10,000. The facebook was founded during the same month that these last e-mails were exchanged. In 2011, Ceglia sued Zuckerberg for a 50 percent stake in Facebook, claiming that Zuckerberg stole his idea. Ceglia eventually withdrew his case.
While some reports on this .frivolous case focus on Zuckerberg’s frustration, I immediately thought something different: Why was Zuckerberg doing work for a client and not getting paid? Isn’t this guy supposed to bereally smart? 1 was perplexed. Then I re-called that he nearly sold a company to Microsoft in high school for about $1 million. Perhaps he thought the risk of not being paid was low, and if the client didn’t pay, he wouldn’t be out of much money, time, or effort. I tried to rationalize his response. I ultimately concluded, knowing from experience, that regardless of what he thought then, it’s never a good idea to do work with questionable payment arrangements or to continue work with a delinquent client.
New entrepreneurs often do work for clients who take ad-vantage of them. I was one of them. I remember vividly how dealt with my first rogue client. Whereas Zuckerberg was twenty years old during his dispute with Ceglia, I was twenty-two when I had my dispute with a customer. I created software for a client who was using it but not paying. I decided to sue him in small claims court. The entire experience was a bit scary. Nevertheless, I went to the courthouse in downtown Atlanta and filed my papers for about $75. The client, who wasn’t that much older than me, ended up paying me the full amount he owed. Accompanied by his father, he brought cash and paid me in the hall just before our case was called. We informed the clerk that we had resolved the matter, and the case was closed.
Since that experience, I have learned and adopted several strategies to ensure faster payment.
- Build trust immediately. During the selling or price negotiation process, work hard to build trust so that you can ask for and receive prepayment for services or a product. Give references before the client asks for them. Also, ensure that your brands and work are presented in the most professional manner, so that the client feels comfortable paying/upfront.
- Be clear with your payment terms. Make sure that terms are well-defined for both sides from the very beginning—and in writing. Always present a clear and concise policy for payment terms, so that the client knows exactly what to expect and what you expect.
- Be aggressive with your timeline. Ask for prepayment first, and then consider longer payment periods if necessary. Do what-ever it takes to get paid on time. Don’t be afraid to ask for what you want. Pick up the check in person, if you have to. In a perfect world, there is no such thing as net thirty days. I prefer net now. The nature of business is that buyers want to pay as late as possible, and sellers want to be paid as early as possible. Your goal as an entrepreneur is to maintain good cash flow, and the best way to do that is to receive your money as soon as possible. You must be confident and direct about when you expect to be paid. Yes, it can be awkward and uncomfortable at times, but take it from Zuckerberg and me: it sure beats not being paid at all or having to go to court.