Start-ups and the Legal System: How to recover money from rogue clients
Updated: Aug 2
Originally published on March 6, 2020.
Last year, this company approached The Testament to help them out with Visitor Acquisition for their conference. I was especially reluctant to take up the project as the promoters sounded funny. But they were insistent, so we went ahead.
What followed was the usual stuff: smooth delivery of service with rigorous updates and follow up from our side. The kind of work which groomed our company to be a growing multi-crore startup in the first place. What was promised was delivered, period. No issue was raised while the project was on and nothing seemed off. Until came the time for them to PAY.
India is said to be one of the hardest places to do business in the world. Why? Because unfortunately, the standards of ethics are ridiculously low here. They're so low that we feel elated to find someone just doing their job with honesty - it's just terrific! In this environment, it seems fair to some scum businessmen like these guys, to get work done by vendors and then default on their payments with style. For them, it's business as usual. This time, however, they picked the wrong guy.
I didn't start up to pay all the psychological, emotional, and financial price, creating jobs and opportunities for hundreds of people around me while squeezing myself with the passion of creating something inspiring - just so someone could default on my payments and screw me over. No. That's not why I started up.
"Don't let anyone screw you over. You don't deserve that. If someone tries to screw you, you screw them back." this quote sounds good to most people, until I tell them it's from Donald Trump. It still makes sense, though. You shouldn't let anyone exploit you. And payment defaults are the most common and severe form of exploitation that ruins millions of small businesses every year. It's tough if you're a small businessman paying Lakhs in monthly salaries, rents, etc., and then someone laughs with your money in his pocket. It's a different kind of trauma that no one should experience, but most small businessmen do.
So what do you do? Here are some really important pointers:
1. Don't be in a business in which you have to follow-up for payments
This is what Padma Shri Sanjeev Bikhchandani sir told me once, and has been my guiding principle ever since. It's also the primary reason for my moving on from The Testament despite it having done over half a million dollars in revenue. Following up for payments sucks. Try to avoid it as much as possible.
2. Be clear on the terms, in written
Not everyone has the good fortune to be in a cash flow positive business. So if you're stuck, please make sure you have the terms written down. Don't care for the long drawn MOUs as they're mostly a waste of time. Just write all the terms on mail and ask the other party to respond to it. Also preserve your text messages. Always. You might need them.
3. Go legal
This is the last and sad option, but don't ever count it out. Your clients are going to stall payments for months beyond the stipulated time and following up will be a sad and traumatic exercise, but in most cases the money should arrive sooner or later. In some cases however, you're going to realize that the skunk is indeed never going to pay. If you wish to live with that, fine. But remember, if this guy has screwed you over without flinching, he must be doing this pretty often. You're not the only victim here. Should you let this be? I would personally urge you to not. You must screw this guy, not just because he has your money, but because he must be sitting on a lot of other people's money as well. He's a habitual offender who needs to be wiped off, so the system could work in a better way. Here's how you do it:
Get a friendly and reasonable lawyer
This is really hard, but thanks to folks like Ajit Singh (Whatsapp: +91 8076319608), it's easy. Just remember the second point and also that your case should be 'open and shut kind of simple'. Going to our Judiciary with something super complicated might just be pushing your luck too far.
Sit back, enjoy life (difficult, but possible) and focus on more important things
Once you have a lawyer with an aligned motivation - getting your money back with interest and extra sauce, you just need to sit back and not think about this at all. First goes the legal notice, followed by the Court's Summon and then it's basically the time for the parties to fight in court. If your case is indeed 'open and shut kind of simple', and you have all the terms in written - the scammer is going to avoid facing you in the court. Remember, you're not fighting to win the case. You're fighting to settle at a premium. And you will. Just relax.
Appreciate the Judiciary when you win
These guys defaulted on our payment of some 40 K (plus GST) and paid us over a Lakh and a half. This could only happen because Indian Judiciary still has some chops which are hard to match. Law enforcement is real, if you're willing to go for it. Cheers to that! :)
An important point which I learned recently (and without losing, thankfully) is that companies often get you to sign a Purchase Order (PO) before releasing the payments. In that PO are some legal terms. If at all that PO has a clause related to arbitration or legal settlements, just make sure you reply on mail (as you send the signed copy of the PO) stating that all matters of conflict will be in the courts of YOUR jurisdiction. This will keep you in a legally safe spot if a problem arises tomorrow. Otherwise, if the client is in Kolkata and you're in Delhi, and you signed the PO which states that all legal matters will be dealt in their jurisdiction, you could lose the case just because of lack of feasibility to pursue it.
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