Conducting Due Diligence on Clients
Not all clients are created equal
It can be so exciting to get your first client that you just want to jump right in!
But be careful — there’s two main issues you want to check in on before you engagement with a client: 1) their ability to pay you and 2) scope creep.
Freelancers often have real difficulty getting paid. Over half of freelancers struggle to collect payment, according to the Freelancers Union. In our experience, this is rarely malintent from the onset, but rather a well-meaning client becoming cash-strapped and putting freelancers’ invoices as the lowest priority payables.
Therefore, I would try to do as much due diligence as possible to make sure your client can actually pay you what they promise to pay you. As discussed in the contracts section, one way is to ask for a third of the project’s costs as a deposit. This is a great place to start, but problems with payment usually come on the last, rather than first, installment. A few basic questions to ask:
- Is the company profitable?
- If not, what is their monthly burn rate? When was their last fundraise and for how much?
The information for question two is typically on public data sources like Crunchbase.
The second big question to answer is whether or not they treat their independent workers well. To do this, I would ask for references to the last three freelancers they worked with. Better to ask the last three than for three recommendations so the client has less opportunity to cherry-pick references. Shoot these freelancers an email asking what it was like to work with this client. A few questions to consider include:
- Did they change the scope of work? If yes, how dramatically and how many times?
- Were they responsive to your communications? If so, what was the response time?
- Did they pay on time? If no, how late were the payments?
- Did they try to renegotiate the terms of the contract at any point?
- Any other comments about working with this client?
Emphasize that all feedback will be anonymized so that the references are incentivized to be open and honest with you.