After spending 200+ hours developing the system, not a dime has been seen or given
Freelancers should always try to get at least a deposit upfront. When I was freelancing, I would get 100% upfront for projects under $500, 50% upfront for projects between $500 and $2000. For projects over $2000, I would get 25% upfront, and then set milestones with payments attached. I had a $7500 project once where the guy made the first 25% payment, I completed the first milestone (graphic comps and UX flowcharts) then he disappeared for a year, not returning phone calls or emails. He then contacted me out of the blue and made the second payment, and I completed the second milestone (HTML/CSS/JS coding), and then he disappeared permanently. Clients like these are exactly the reason you need to get some payment upfront.
We're a small company relative to the kinds of companies who usually contract out dev or tech work, and we will pay something up front. Probably closer to 25% than 50%, but we wouldn't get mad if you asked 50%.
I'm saying this as a data point for people just getting started who might be nervous about asking for payment up front. If we'll do it, I'm sure many other people will too. It's a reasonable request.
On the other hand, just so you know: we never ask for payment up front for our services, ever. That's because we'd almost never get it. Most companies with in-house finance and/or counsel aren't going to pay you anything in advance.
If I were freelancing, I'd ask for up-front payment, but I'd let the issue drop for any company I knew was large/established enough to pay me; if I was in a relationship with such a company and doubted the project really had legs, I'd just walk from the project.
An additional wrinkle is that oftentimes it can take a while to set up the mechanics of payment with a first-time client. So even if there is goodwill on both sides and a willingness to pay an initial deposit, you might not see the money until you've done quite a lot of work.
Since a lot of contract work is time-sensitive, waiting for payment to clear before starting work or handing over an initial milestone might not be an option. There's a tension between the desire to make a good impression on a first-time client and the desire to make sure they're not taking you for a ride.
Fortunately there are often warning signs when a client is going to be particularly difficult, and there are far more decent clients than unsavory ones.
oh man, this. So I've been doing contracting forever; usually direct to smaller companies or through a middleman who was also pretty small. And most of the time, smaller companies are pretty good about paying on time, and pretty responsive if you say "Hey, this is really important to me, I've gotta pay the power bill." (my power bill, well, let's just say it could buy my car every month.)
At my first contracting gig using a body shop way larger than I was, well, they'd kinda sort of start thinking about paying me 30 days after they got my net 30 invoice. This /really/ bothered me. In fact I made a lot of unprofessional noise to the client, and ended up staying home, once, until they paid me. The thing was, I was really worried that they weren't going to pay me at all.
It did not occur to me that this was just standard operating practice, and that they were planning on paying me; they just wanted to stretch it out a bit.
They might not even be trying to "stretch" it (a large company could give a crap about the float on an indie consulting invoice); they might just run accounts payable on a state machine in which the part that elapses a timer hasn't started yet. There might be all manner of reasonable reasons for doing it that way; for instance, if they accidentally release payment early, they may screw up projects by blowing expectations.
In any case, yeah: some of your best clients will do a terrible job paying you on time. 'slife in the big leagues.
I once worked in a bank doing tech support and occasionally fixed a few things in the sealed-off internal finance room. The place was littered with red final notices - including utility, phones, everything. As a bank they could easily put to use any extra cash they had, so the official policy was to pay everything late. No doubt everyone knew they would pay eventually, but when you're big you don't have to.
When I freelanced one of my customers moved the accounting to SAP, which had the unfortunate consequence that they didn't pay me for four month.
It was, however, a reputable, well known firm and I had no reason to believe that they where playing games or trying to bullshit me.
I was right and got payed in full when the glitches got ironed out. Nevertheless, it was a tad annoying and part of the perils of a freelancer, I guess. Thankfully, while being persistent with their accounting department I never blew up and always stayed civil.
Very much second that setting up the invoicing for a new supplier can take time, especially at multinationals or other large firms. I can understand this due to the fact, that procurement is one of the most sensitive areas when it comes to fraud and dodgy invoicing. Thus firms set up a lot of safeguards before actual money flows.
What do you think of putting less than +30? I've only ever done any large work with long standing clients that pay quickly. Would the majority of clients not agree to it? Could be a way to ensure that it ends up being +30 even with the client dragging their feet.
You can ask for whatever you want. You'll only run into problems with BigCo's if you do one of two bad things:
* Refuse to sign unless the BigCo agrees to your payment terms.
* Actually expect the BigCo to perceive time elapsing in a way that will get you paid in 30 +/- small n days.
They won't get offended when you ask for net+15. They might even agree. But you're getting paid when the stars align, not when you think the contract says you're getting paid. Established consultancies devote a small but palpable bit of effort managing this issue.
I did business with a department which was in the process of spinning off from a big Fortune 100 company. They had plenty of funds, but there was a lot of bureaucracy during the transition. As such, they told me they 'required' net-60
I asked for clarification, and they were apologetic about it. They could only run payments on a 60 day schedule. Solution: I billed net-30, 15% monthly surcharge for late payments, which they happily paid.
The lesson was that sometimes a client has no choice but to drag their feet, so be sure to give them that option (for a fee).
Good point. Its hard to believe how long it can take to get set up as a vendor in QuickBooks/with accounting, (i.e., "get you in the system"). But once its taken care of (after you've been paid once) payments become more timely.
Just to add a +1, we're also totally OK with paying half upfront and half on delivery. Milestones are fine too if that's what vendors prefer, but I think 50/50 is easiest.
Once we've worked together, I'm happy to pay 100% upfront for anything < $2k. Its an easy (~free) way to improve the relationship. I recommend it to anyone who contracts out.
On the other side, we usually ask for 50% from new clients, but will let it drop if there's a good contract in place and/or we've worked together a bit. Much more concerned with getting paid than cashflow.
Agree that big companies are never going to pay upfront, it will be net 30 at best, take it or leave it. But never do anything on net 30 without a purchase order (PO). It can take a while (months, damn the invoice date) but you'll get paid eventually.
Where is a good place to learn the ins and outs of contracts? Is there a comprehensive website or book that you can recommend? I am early in my career and have been on both sides of writing contracts. While I am figuring a lot of things out as I go it would be nice to sit down and wrap my head around this for good.
Also, to the OP, is a few weeks really enough time? If those were 200 billable hours it seems like it's worth a tad more hunting.
Where is a good place to learn the ins and outs of contracts? Is there a comprehensive website or book that you can recommend?
The freelance kit from www.sitepoint.com is where I learned a lot about techniques for freelancing. That's where I picked up the technique for deposits and milestones. In fact, one of the best pieces of advice I got from there was never to be the lowest bidder. There was a project we were bidding on, and the client ended up going with us even though we were the highest bid ($8000). He showed us the other bids, and they came in at ($1600, $2800, and $4500). He liked our proposal for a few reasons: One, the other 3 bids were just Word documents or PDFs attached to email. Ours was printed in color, bound, and sent FedEx overnight. Another, we had detailed writeups of 3 previous projects with testimonials and phone numbers of the clients (used with permission). Lastly, we had suggestions for additional features to add, with a cost/benefits analysis on each, along with suggestions of features that could be cut to reduce the timeline or cost. All of these were suggestions from sitepoint's ebook.
I've run my own marketing firm for the last few years and have dealt with similar issues as the OP.
How you structure up front payment is always up to you. We've always had a setup fee, typically a few thousand dollars, which is due before any work starts. However, there has been one single thing which has kept our revenue flowing month after month for years: Freshbooks.com
I seriously love that site. We use it for:
1. Making estimates
2. Tracking hours worked against estimates
3. Invoicing based on hours and services rendered
4. Making sure the client indeed noticed the invoice - it says "viewed" when you send by email and they actually log in and view, so you can call bullshit when they say "I didn't get it yet!" :D
5. Automatically adding late fees to invoices. We charge a relatively nasty fee each month for a late invoice and it automatically adds it to each one.
6. Tracking payment; clients get notified via email when payment has been received, something many have commented on as a great feature.
Quickbooks and other tools are all well and good, but imho I think Freshbooks pretty much handles 90% of what you need to be successful independently :)
We charge anywhere from 5-10% each month, stipulated in our contract. This takes care of 90% of late payments as no one ever wants to pay that much in a late fee...and they are unwilling to say it is too high because the immediate reply is "why would you worry it is too high? You aren't planning on being late when paying, right?" :D
>"Where is a good place to learn the ins and outs of contracts?"
It's more an issue of customer relations than contracts. Contract specifics should be a reflection of that relationship (or lack thereof).
The way most people really learn customer relations or contracts is The School of Hard Knocks. The introductory sequence consists of SHK101 - Get it in Writing, SHK190 - Retainers, SHK225 - Applying Retainers to Final Invoice, and SHK230 - Termination Fees.
Be aware that if you client has more than ~50 employees, you are very unlikely to end up working under your MSA. By all means try, but be ready to have your lawyer review their MSA, because their MSA is going to be the basis for your project.
You might almost be better off trying to sneak in under the MSA with the "simplest contract that could possibly work" than you'd be by formalizing the relationship with an MSA. It is very possible to get a one-off contract executed, especially for one-off services. On the other hand, if you ignite the "MSA" neuroreceptors, you may find yourself far worse off than if you had simply gotten a Nolo-style work-for-hire contract signed; for instance, it's the MSA that's going to have IP clauses, noncompetes, insurance requirements, and things like that.
Be careful and don't wave things like "MSA"s around just because they seem like best practices. They are, for a company like ours or like Hashrockets; we're set up to negotiate and review MSA change bars. You on the other hand may not want to round trip with a lawyer several times just to do an $8000 PHP contract.
> Where is a good place to learn the ins and outs of contracts?
Law school. ;)
Okay, okay. Seriously, besides getting a lawyer and have them draw you up a standard contract, there isn't much you can do to "wrap your head around [contract negotiation] for good" as there's just too much to learn. Some of it comes from experience (you'll start getting a radar for certain kinds of clauses), and there's no quick fix for getting experience besides the passage of time. Specifically, make sure there is a provision in there for getting some of the payment up-front (as grandparent suggests), and specify a late fee % for any overdue bills.
Honestly, it doesn't need to be complicated. If you just require 25-50% down on your contracts that will weed out the scammers from the legit customers, and will make sure you get partially compensated should they ever leave you in the lurch. Make sure you document all communication, try to keep it over email so it's easy to do that, and you'll be fine should you ever need to take something to small claims court (which will probably never happen).
Completing a project without a contract is begging to get shafted. It sets up an incentive for the client to demand extensive modifications and long-term support --- things you'd otherwise be charging for --- or even invites them to take your work and hand it to another contractor as a starting point.
Message board cynicism is a poor excuse for bad business practices.
They do at least offer you a leg to stand on when it comes to clients asking for constant new features without wanting to pay for them. You can refer to it to back up your refusal to do extra work and by the same token it sets a bare minimum standard for you to meet before the job is considered done.
I did some freelance without a contract once and because I didn't have an agreement in writing I didn't have much recourse to tell them there'd be a charge for additional services.
A contract will never be a quick and easy solution to stop people doing a runner but you can at least limit the damage caused with one.
Contracts are useful for spelling out the rights and responsibilities of each party so there are no misunderstandings later. But I agree with you, if the person you're contracting with doesn't want to pay you, you may well waste more than the contract is worth trying to get your money.
If your client ends up not using your work product, either because their business falters or because they reject your work, you stand a good chance of not getting paid --- contract or no contract. That's life in the big leagues.
If your client ends up using your work, your contract is going to end up plenty enforceable.
If your client ends up using your work and you don't have a contract, don't expect to get paid this year, and expect a painful obstacle course of unreasonable support demands. They'll pay you eventually, but since you've reduced the worst case outcome to "amount we agreed on" from "treble damages and site downtime", they have every incentive to drag things out.
Exactly. This is the same reason car dealerships or mortgage lenders ask for a down payment. You want both parties to have "skin in the game" so neither wants to walk away from the deal. If you can't come up with $500 upfront as a show of good faith, I don't want you as a client. That is non-negotiable. In my experience, this is more of a problem the lower the project price is. On $5000+ projects, you're dealing with a type of client who is used to paying deposits upfront (just like when you buy a car, a house, or hire a contractor to remodel your bathroom). On the $500-$1500 projects you get more amateurs.
Or any company large enough to have a purchasing department or in-house counsel. I'm just saying, be careful with black-and-white stuff like this. Your rule of thumb will serve you in good stead with small local clients, or fledgeling startups. It's a lot sketchier with BigCos. BigCos don't dick around with payables; it costs them more not to pay you than it does just to respond to the damn invoice. They may take forever+30 to pay you, but they will pay you, and they know it, and so they're a lot less likely to go through the contortions they need to go through to pay you anything up front.
Your rule of thumb will serve you in good stead with small local clients, or fledgeling startups
That is a good point that I didn't make clear in my earlier posts. As a freelancer, by choice I only dealt with individuals, small businesses, and startups. I soon found that the $10000 mark was the upper limit for projects those types of clients go for. Above that and you start having to deal with big companies and their bureaucracy, lawyers, etc. Those projects took forever to close because the CTO or some VP needed to sign off. But you know they can and will pay...eventually. We ended up avoiding those jobs just because it meant less headaches, getting paid quicker, and that we would have the upper hand in negotiating. There is nothing wrong with going after the low-hanging fruit.
I originally wrote something to the effect of "BigCos are never going to pay you up front", but tried to go back and edit my comments to hedge this, knowing that someone here would have some kind of counterexample.
I don't have a black and white rule here; I'll just say two things:
* BigCos usually have payable processes, and if they do, your contact at the BigCo is unlikely to have the authority to short-circuit them unless your service is so cheap that they have direct signing authority for it. Otherwise, what you're fighting with the payment-upfront negotiation is the friction it takes to change any part of a BigCo's "how do we release invoices for payment" process. If anyone with title =~ /purchasing/i is involved in your negotiation, give this up.
* Equally importantly, the payment upfront clause mitigates a risk you mostly don't have with BigCo's. Upfront payment is earnest money. You need earnest money when the amount of money you're working with is large enough to be worth your client stiffing you over. For a BigCo, almost any first project you do is going to be worth less than that amount; your $15k web project is a rounding error to them, and any real dispute over payment is going to cost them more than $15k in the end, and they absolutely know it.
We've turned away work from clients who can't deal with our requirement to get at least a token retainer up front. It becomes easier and easier to say no to these clients (even during lean times). After having done this for years, you think back to all the times when something goes wrong on the project and the client uses your invoice as leverage to do something stupid. Having a retainer means that payment of your invoices is not optional for them.