Legal, Tax, and Accounting June 15, 2020

My client stopped paying my invoices for work on a project. Am I allowed to use code written for him?

Stan van Rooy @rooys

I've spent around 3.5 months developing a SaaS app for a client, for which I invoiced him on a month per month basis with a 31-day payment term.

For the first invoice, there were no issues, but the second, third, and four invoices have not been paid (in full). The client kept coming up with excuses, demanding more to pay an invoice and when I did give in to the demand, he still didn't pay.

When I stopped, the app was pretty much done. It is currently live and even has a pretty large client base.

In total, I have worked roughly 2 months for free. I'm 99% sure I can mark the invoices as uncollectible, so I'm trying to figure out if there are any other ways I can make some money out of it, so I'm trying to figure out if I am allowed to continue the development of the current codebase and launch the product myself?

I can't find a concrete answer anywhere, so I figured why not try if anyone here can point me in the right direction :)

Thanks in advance.

  1. 3

    That sucks. Like other said everything depends on your contract. Do you have one?

    A good contract would specify things like:

    • Who owns the code at what point (pro tip: you own the copyright to the code and the customer gets a perpetual license)
    • When a customer or you can withdraw the project and which costs are associated with that
    • When a project is deemed "accepted", voiding any discussion over payment or deliverable, and how grievances should be communicated.
    • Whether you can pause work if there are late payments (schuldeisersverzuim)
    • Payment terms: when to pay, what happens when they don't pay and what additional administrative costs are passed on to them when they do not pay in time, and at what point the invoice is handed over to debt collection (incassobureau)

    You might be tempted to take the app offline but under (Dutch) law, your customer will be able to sue you for lost income, so I'd suggest not doing that.

    1. 1

      Hi Kilian, bedankt voor het antwoord :)

      I've discussed it with the lawyer that drew up the contract for me. The client owns the copyright of all the code written during the duration of the contract. (I was hired as a 'consultant' for indefinite period)

      I should've stopped working on the application as soon as the payment term expired and send the client a written warning, which makes sense.

      The client got referred to me by a mutual friend, so that's why I gave him so many chances. Which of course is stupid from me, when looking back at it..

      The client is from the US and I'm from the Netherlands, so, while technically possible, I don't think it is worth my time and resources to try and collect the debt.
      .
      I guess I'll just leave a review on Glassdoor and see this as an expensive but valuable lesson and move on :)

      It has inspired me to start looking into the possibilities of starting a SaaS business myself, so that's positive

      1. 2

        All companies deal with late payments and most of them have clauses like this yet continue the work regardless, it's part of the deal (and luckily, you can usually assume good faith), not stupid!

        I highly recommend you switch to the ownership of code + perpetual license model since it frees you up to reuse code, something you can't now do. Some customers might read that and then ask for an addition prohibiting you from ever making a competing product with the same code. If they do, charge extra!

        Also, your contract should always have the clause that the code is yours until the payments have been made in full (even when 'consulting'). I consider it a pretty big oversight of your lawyer that this isn't part of your contract.

        Sorry I don't have more advice, with the client in the US going after them through the legal system will probably cost significantly more than you stand to gain.

        1. 1

          Maybe stupid wasn't the right word, I meant because of all the red flags, like saying the payment was made, which wasn't true, or saying payment will be made on Monday because of xx and then nothing happens :)

          Thanks for all the advice. I'll definitely look into changing to a licensing model.

  2. 2

    Not paying is a breach of contract, therefore you can sue them.
    Using their code if they have obtained the copyright is also a breach of contract, and they can sue you if you use it.
    It depends on what is in your contract. There are ways to get the money through courts or alternative dispute resolution. Just don't use the code if they have the copyright.

  3. 2

    What's in your contract? Anything that covers this situation? In my web design contacts clients dont get the copyright ownership until they pay in full. A lot of web designers won't launch or go live until it's paid. Graphic designers won't send deliverables until everything is paid.

    If it's live, but you have control, you may consider "forcing" an error that breaks the app and needs to be fixed. Small claims court is probably the more professional route, especially if you have a contract.

  4. 2

    um. so.. i'm not a lawyer, but, it sounds like your client is in "breach of contract" for not paying... but that doesn't mean that you should then, also, become "in breach of contract" by using code that they contractually own...

    right?

    of course, i have no idea of the specifics to your contract... ¯\(ツ)

    anyone else?

  5. 1

    That always stinks! It sounds like you could use ductllc.com. We are starting to gather a beta list for people in other areas of contract work other than construction. If you are interested let me know! Would love to help!

  6. 1

    What is the SaaS? Might be interested in buying it. Email me [email protected]

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