Specializing in Law/Legal, Business/Management, Finance/Banking, Tourism/Hotel Management Translations, Localization and Subtitling

A Freelance Translator’s Guide to Credit Risk Management in Translation Business

Or “How to Remain a Freelance Translator Without Getting Ripped-Off Every Once a While” 😀

I read -with much heartache and great sympathy too, horror stories posted by fellow translators and especially the newcomers of the profession on social media sites and Proz.com forums almost on daily basis. Every once a while a “client” disappears with your hard-work and you have no payment –or only partial payment, and nowhere to turn to because the internet is this gigantic mass. As great American philosopher Axl Rose once put it nicely: welcome to the jungle baby.

As freelance translators, sole-traders, solo performers, lone cowboys of the wild wild internet, we strive to promote our business and market our services to potential clients. Now this marketing thing is a double-edged sword. You reach great many decent and honest people but “occasionally” you’ll reach someone who’s after a quick buck or worst, “occasionally” some cone artist will reach you. And since we are involved in freelance translation and constantly engaged with marketing activities, considering all those new contacts we are making throughout the year, “occasionally” is too much risk to be exposed to. So, as a freelance translator, who has 20+ year experience in the market, I thought it would be good idea to put together this blog post to share what I know about “credit risk” and how to manage it.

I’d like to make it very clear from the beginning: if you are a real translation agency –for instance, using Gmail as their main service provider, you’re fine. I’m not saying that you are a cone artist or dishonest etc. but be prepared, you will be generalized here. That’s what risk management entails. Generalization is key to risk management. Not every smoker dies of cancer or smoking-related health problems but that does not make smoking a good idea. We still generalize and full-heartedly say: DO NOT SMOKE! It kills you. So please understand that the purpose of this post is not to pick on you, but to help freelance translators and new-comers (and everyone else doing freelance business for that matter) mitigate and manage the credit risk that they’re exposed to effectively.

So what is Credit Risk?

It’s just a fancy word finance and management professionals use. It’s basically the likelihood of being screwed over, cheated, coned, bilked, deceived, defrauded, duped, scammed, suckered, milked, tricked, ripped off. They all mean that you didn’t get the payment or a part thereof for your hard-work and some scum somewhere is laughing about your loss. In case it’s not clear by now: scammers piss me off!

Credit risk is not fully avoidable. You can only mitigate it. Because the more strict you are, the more potential business you will lose. It’s a trade-off. Sometimes (especially for small assignments that take only minutes to complete) it’s just cheaper to take the risk. But if you are like me and the idea of “being taken advantage of” infuriates you, you might just do that small assignment for free to begin with. It’s good because if the client is an honest person, they will surely appreciate your gesture; if they’re a scammer, you just gave away ten to thirty minutes of your time for free but you are not taken for a fool). It’s better in my book. So when you do the checks I outlined below, keep this in mind and compare the risk of losing a potential client to risk of getting scammed.

How do we professional translators manage credit risk?

We professional translators must manage credit risk the way all other businesses -including banks, are managing it:

Be mindful of red flags

Luckily there many red flags that could help you tell a scammer from an honest industry professional. Being aware of these red flags will save you so much time. If you are careful about these, I promise, you will be able to detect a scammer without even having to go through many of the checks and procedures I outlined below. What are those red flags?

  • Spelling: apparently, language teachers in faculties of scamming suck. And as a linguist / translator, you have a keen eye for them spelling mistakes. Someone from language services market, be it a translation agency employee or a fellow translator, will not make repetitive and/or disturbingly obvious spelling errors. That’s not the case for a Nigerian joint account scammer (no offense Nigerians; I know most of you are honest people).
  • Domain / Email Address / Website: I know there are still some people that prefer to use free email providers like Gmail, Hotmail (which is Outlook.com or Live.com now), Mail.ru etc. In their defence, most of these providers offer excellent spam detection. They are easy to setup, easy to use. And all and all, they are very practical. But… It is so easy to setup a fake account with these providers. They don’t ask for an ID. Because they’re free, they don’t ask for a credit card. Anyone can open an account under any name in 2 minutes. Using these free email addresses for business purposes is therefore largely frowned upon in business world. Domains (own domains) are not like that. One has to register their domain using their real name (identification is needed in most cases) and that real name is kept in NIC database. Also, typically payment is made by credit card or via bank transfer (both methods are traceable). Furthermore, owning a domain and a website shows one’s dedication to their business. Designing and promoting a website takes much time, effort and money. In fact, often times domains of respected translation agencies are worth more money than their actual / physical offices.
  • Web presence (or lack thereof): A web presence is not just a website. Look for their Google Workplaces and Google Business entries. If they have a physical office, they will want to be registered in Google Workplaces (so that when people search in Google Maps, their workplace shows up among search results). Check if they have professional affiliations (ITI, CIOL, ATA, etc.) and memberships with language services websites (TranslatorsCafe.com, Proz.com, etc.). Reputation is built throughout many years and people who built reputation would never ruin their reputation.
  • Rush: A scammer may use rush as a tool to confuse you, to hurry you in to making decisions (which may prove to be wrong). Be extra careful if the assignment is a rush one and do not compromise from your credit checks just because potential client says they are in hurry.

– please be quick. I really need to deliver this by noon. You can charge me an additional 100$ rush fee.
– Splendid. Since you are in such a hurry, purely to speed things up further, please send that 100$ to my PayPal account xxx and I’ll do the translation free. You’ll have it an hour after your payment reaches my PayPal account.
– I’m not paying you now.
– Why not?
– Because I don’t know you. You might cheat me.
– Aha! Now you know how I feel.
Makes perfect sense, right? Just don’t try having this conversation with a client because if there is one thing people hate more than scammers, it’s smart asses. Trust me. I know what I’m talking about.

  • Offers that are too good to be true: Is there anything unusually good about the offer? A rate much higher than industry rates? Translation of a general text priced like heavily technical legal translation? Astronomically high word count? Scammers lure people by making dazzling offers. Sulun Osman, famous cone artist from Istanbul who sold naïve people from rural areas of Turkey Bosporus Bridge and clock towers and whatnot, once said: “I only cheated those who wanted to take advantage of me. I would offer them something that is worth thousands of liras and ask for a mere hundred lira for it, and they would gladly pay, thinking that they’re taking advantage of me”.
  • Eye popping claims / representations: In a similar note, scammers love to glamorize themselves. “I’m the president of such and such country”. “I own diamond mines in XXX”. “I am the finance minister of XXX and I have gazillion dollars that I need to move abroad and I thought to myself hey, why not give all this money to the reader of this message”. Or specifically, in our business, “I am CFO of such and such multinational company. We typically have thousands of pages of legal content. And we want to work with you”. Such claims and representations may be (notice, not “are” but “may be”) an indicator of a scammer, so watch out.

Gather all the information about your potential translation client

Having as much information as possible is important because the more you know, the more you will be able to detect any red flags. Knowing particulars of your potential client is also important if you have to engage a payment collector later. Note their email address. Go to their domain (domain is what follows @ mark in email addresses so basically my email is …@halukaka.net and therefore my domain is halukaka.net). Normally, there should be your potential client’s website hosted at that domain. Check their contact details on their website (while doing that, pay attention to every detail of the website: Does it look professional? Or does it look like someone put it together in a matter of minutes using free website templates, which are available all over the internet). Does the website have enough content (that would indicate that a group of people spent many days of work on that website, and it would be less likely that a single person put the website together in a few hours for some dubious purpose). Copy sections of the text and search on Google. Can it be plagiarism? Scammers like to steal instead of spending many hours to produce original content. Check the name and details written in their email signature against details on their website. Do they match? Take note of their address, phone number, fax number, email address(es), addresses of any branches they may have. Check the names of individual employees that you may see on their website against LinkedIn profiles of those persons (do they really work at that translation agency?). If you can, pick up the phone and dial their number, “just to say hi” –and confirm that they are who they are and that they are aware of the translation assignment that was sent to you “from them”. Believe it or not it is still possible to make an email message look like it’s coming from someone else (I used to prank my friends by sending them emails from president@whitehouse.gov and whatnot – older versions of SMTP let you do it and it’s still doable). Do a web search with their company name and take note of any additional website, workplace (Google Workplace registered on Google), etc. you might see. All these details might come real handy in preventing or recovering a financial loss.

Run a credit check on them

Now you have all the information you need at hand on your translation agency client or end-client of your translation services, it is time to run a credit check on them. Go to TranslatorsCafe.com and Proz.com (if you are not a member, go sign up right now because they are great websites for freelance translators, interpreters and translation agencies around the world). Both websites have means translators can use to validate their potential clients: TranslatorsCafe.com has Translator’s Ratings in agency profiles (basic, five-star rating used anywhere –more stars means more credibility). Proz.com has BlueBoard (a 5-point system – higher the score, more credible the agency). Check both pages thoroughly and look for three things: 1) do they have a high or average/low score? Higher (than average) score means majority of translators gave them higher scores (duh!) 🙂 Lower score means, majority of translators were disappointed with this particular agency. Higher score is a good thing but not enough (read on). 2) Is there any downward trend in their scores in recent times? For instance, a given agency’s score may be 4, which is good, but there may be series of 5s followed by many recent 1s and 2s pulling that average down to 4, in which case we would reasonably think “oh, most likely, they started having financial difficulties recently”. So even if they have a score of 4, we would be very cautious about this agency. And finally, 3) Are there enough reviews / entries in their record? Dozens of entries with various scores with an average score of 4 might be more credible than having 2 entries with an average score of 5. Problem with reviews is that they can be faked to a certain degree (people can ask their friends and relatives to give them 5-star ratings so technically, it is possible to adulterate those ratings up to a certain degree). More reviews means greater credibility.

Next do another web search with their company name and this time look for any non-payment, complaint etc., anything that could be useful. If the assignment is big enough, you might even consider hiring a referencing company or a credit check company (who will have access to places where you can’t access and have a more thorough check). Also, be sure to check Facebook groups.

Ask for a collateral (which is prepayment in this case)

In foreign trade people ask for letters of credit to secure their merchandise. It’s not possible in our profession. One way to tackle this problem is to ask a prepayment. Every translator has a different rule. Some ask for one third, others for 50%. Also, in my opinion there isn’t a golden rule that works for every case. If the client is an individual or the “assignment” smells particularly fishy, I might ask for 100% prepayment. Partial prepayment is good because it is an indicator that the client intends to pay. If they paid you a certain percentage before you start working, it is very much likely (but not guaranteed) that they will pay for your hard work once you deliver it to them. It is tricky though. It’s not always easy to convince people in to paying you certain amount up front. There are two main reasons for this: i) they might not trust you and/or ii) people like to have an upper hand in business – if they pay you now, if all of a sudden you have a conflict with them about the quality of translation that you delivered, would you still take time to fix it to their liking? You can tackle the trust issue by explaining to them that, as a freelance translator, all you have is your reputation; that you have many professional affiliations (if you don’t, you should); that you subscribe to Codes of Conduct of those professional organizations. Second issue (having upper hand thing) can be overcome by asking a certain percentage up front, remainder upon the completion as per the client’s payment terms. Common ground can be found.

Have a formal translation services agreement and a PO

This is important in so many ways. If they have a professionally written contract and PO with a nice design and project numbers, client numbers, job numbers, etc. ready, it is very much likely (but –again, not guaranteed) that they are a legitimate agency. A scammer would not spend hours to prepare those (even if they did, stuff they prepared with all the spelling mistakes, weird language, inaccurate references to legislation, etc. would trigger your scam detector anyway). A contract and PO (even if electronically signed and/or electronically accepted) can be taken to a court. If you need services of a payment collector, they will definitely ask for a contract and PO, in absence of which they will not help you.

Have payment collectors

Have you realized how easy it is to tell someone to piss off when that someone is far away and can’t get to you? You don’t even need muscles. 😀 Same principle holds true when dealing with people from other countries (and people on the internet). Everybody is a gangster until a payment collector walks in. I’ve had a few PMs or accounting persons that kept ignoring my friendly dunning notices, not answering my phones, my emails for months, and after a single call from a payment collector in their country, they paid, and I mean immediately. You can find payment collectors on the internet. If you have many clients in a given country, it is best to look for and find a payment collector before you need them. Ask them what they would need to collect your bad debt and complete your paperwork accordingly. They charge a percentage of your invoice and in some countries, they even collect their money from the payer.

Maintain an insurance policy and/or set aside a provision

No matter how careful you are, at some point you will have bad debt. I had this great client, who owned and ran an agency in the US and paid his invoices on the day they become due. I worked with this guy many years. One day he stopped paying. I thought, being the senior citizen that he is, he must have forgotten. He’s honest. He’ll pay next month. He didn’t. Meanwhile assignments kept coming, albeit from another PM, who had the same last name. His son probably. So in about third month, I wrote to him. Then to his son. I got no answer. To date, I don’t have an answer to those messages. Turns out that the old owner of the agency, as honest as he was, had died and his son couldn’t manage the business. He honestly went bankrupt. I and a few other freelance translators had to write off whatever that agency owed us.

So if you have the intention to remain a freelance translator, if you are here to stay for many years, then it would make great sense to be prepared for those unfortunate moments. You can do this by setting aside a certain percentage of your profit. It’s called a “provision”, or precisely “provision for bad debts” in this case. If you have an accountant he’ll set it up for you and you just don’t touch that money. That money accumulates and at a certain point in the future when that money becomes more than what you need to cover your risk, you can transfer some of it to your operating profit and use it. If at any point you can’t get your money from a client, you can write it off, and charge it against “provision for bad debts”. Obviously, it’s still a loss but it won’t affect you as much.

The other way is having an insurance for financial loss. Insurance companies will evaluate your risk exposure and quote you a certain premium, in consideration of payment of which they will pay you whenever you fail to collect your money from your client.

Some believe in risk-based pricing, i.e. charge more if the risk is greater, but I am not much of a fan because overcharging people is never a good idea. A non-payment will be more likely if you overcharged someone. In fact, if they don’t have the intention of paying you in the first place, they’ll accept whatever the high price you quote them. That said, risk-based pricing can still be useful and fair if you have an insurance or provision for bad debt (where premium paid by high-risk / high-price client goes to your insurance payment or provision – it’s all fair).

I’m hoping that I was able to cover most important aspects of credit risk management in translation business, especially from a perspective of a freelance translator. I hope that this post will help you build your translation business without exposing yourself to unreasonable credit risks. A final note: I wrote this rather long blog post quite quickly in approximately 4 hours stretched to 2 evenings. It is not proofed (other than a quick spellcheck). So please, don’t judge my English skills on basis of this post -if you detect anything, be a sport and let me know quietly 😉 I wish all my colleagues all the success in their businesses.

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