We pretty much completed a project for a client, as we neared the end of testing the clients now say they have ran into financial trouble with one of their bigger customers going bankrupt meaning now they are close to bankruptcy themselves and have no money to pay us.

I am in contact with the owner of the business but dont exactly trust what he is saying.

I am unsure whether to take them to the small claims court before they go bankrupt, so if the company is wound up we would be at the top of the list of creditors or wait for the business to possibly recover with the chance of full payment but the risk of getting nothing.

This is a hard decision and any advice would help a lot.

what have you got to lose?

Considerable time, effort and money. We had two developers working for at least 6 months on this system. We are a small company and can not easily afford to write off the money.

This system would have enabled them to cut staff and costs, by working with them we could help them recover and get the money we were promised but it does feel like a long shot now...

If we take them to court we draw a line in the sand, ruin the working relationship, potentially force their bankruptcy and risk getting not very much.

Sorry, I meant by taking them to court, what have you go to lose, but you answered that anyway. So the question is, which loss is worse for you? The lost revenue or the lost client?

One thing to remember is that a customer is not a customer if they have not paid you.

What do you think they would do in your shoes? Risk losing their business relationship or do what they need to do to maintain their company cashflow?

Is your friendship with them worth more than the money they owe you?

until the fail to pay an invoice you cant take them to court

presumably, whatever it is you have written is yours until they pay in full, so if they dont pay up then
a) you could sell it to other firms so recouping your costs, and possibly make a bigger profit
b)stop them using it or the liquidator flogging it.

Unfortunately if they go under you will have equal status with all creditors....behind the inland revenue.

You have possibly got retention of title but for software that is meaningless.

You could possibly try 'offering a big discount for immediate cash payment' to try and cut your losses.

Unfortunately if they go under you will have equal status with all creditors....behind the inland revenue.

You have possibly got retention of title but for software that is meaningless.

You could possibly try 'offering a big discount for immediate cash payment' to try and cut your losses.

yep. Getting a CCJ won't get you anywhere near the top of the list of creditors. If you're talking small claims then you're talking less than £5K and you are probably gonna be quite low down on the list (Inland Revenue are normally top!!). Sorry.

A client relationship is not worth having if you work for them for nothing. I would initially get a solicitors letter threatening them with the court action - a lot of people do pay on this. If they do not then I would either write it off and save you time and upset or then take them to court.

It is a lesson that most business have to learn unfortunately (me included) the lessons to learn is to in future to get interim payments to minimise the risk and to get directors to give a personal guarantee.

By the way the Inland Revenue no longer rank above other creditors in a winding up.

One thing to remember is that a customer is not a customer if they have not paid you.



Spot on!

Also have you written into your contract that you own title in the code until your paid in full? If so the asset belongs to you which would allow you to sell it elsewhere.

Also; could you do a licensing deal with them, they pay you a monthly fee (throw in maintenance if necessary) for the lifetime they use the software. This way you are helping them overcome their cash flow problems, which would be appreciated and you build a longer term revenue stream...at the end of the day you've sunk the cost of your two developers for 6 months...so what have you got to lose?

When we do product development we always insist in a deposit with staged payments dependant upon achieving certain goals.

Good luck with this

A client relationship is not worth having if you work for them for nothing. I would initially get a solicitors letter threatening them with the court action - a lot of people do pay on this. If they do not then I would either write it off and save you time and upset or then take them to court.

It is a lesson that most business have to learn unfortunately (me included) the lessons to learn is to in future to get interim payments to minimise the risk and to get directors to give a personal guarantee.

By the way the Inland Revenue no longer rank above other creditors in a winding up.

Is this really true? When did this change?

i would ask your self one very simple question
look at the facts and ask this
is it they cant pay
or will not pay

you should negotiate a payment plan it doesnt matter how much it is per week or month, but they have to pay all suppliers one way or another or they will not be in business.

If they will not agree to this i would look at what assets the business holds and then make a pragmatic business decision.
Are they limited ?
if so a solicitor will send them a winding up order (i forget the technical term)for around £80.
before you send anything write to them and tell them anything costs you incurr in recovery will be added to the bill.
finally it after the fact but make sure all contracts in future have ownership reclaim clauses and a personal guarantee against the owner / director.
than you can chase the individual.
good look
this wil make a payment forthcoming if they can afford it.

Thank you all for the excellent advice

Is this really true? When did this change?
Yes, in the last few years.