Is it a good idea to make the advance payment of a project non-refundable?

Question

I am in the process of making the project agreement for a project that I will start working on. I will be taking 50% advance payment and the rest of the payment will be made after the project is completed and before I hand over the credentials of the website to my client.

Now suppose the client is not satisfied with my work and asks for a refund.

I wish to know whether it is a good idea to make the advance payment non-refundable?

Or shall I opt for a partial refund (on the advance payment amount) based on how much work I did and whether I purchased any commercial licenses of digital products for my client in the process of developing his website?

Please let me know which choice will be better and more convenient to use for my present client or any future clients.

Thank you so much.

Answer 1

Part of what makes it an advance is that you're delivering a product/service. Part of making a deposit is that you may have to give it back.

Whether it's 50%, 10%, or 100%, it doesn't matter - the fee should be paid towards your work as you're doing it, or before. Make sure you do not call it a deposit, as that implies the customer could ask for it back.

I would suggest to also make a Scope of Work document that includes milestone payments (i.e. 3 month project, pay 25% up front, another 25% at month 1 end, another 25% and month 2 end, and the final 25% on delivery). You still need to eat and pay bills, and get paid for your work.

Answer 2

If this is before you have written the contract, then you get to decide if it is non-refundable. If the client agrees and signs the contract, that is all that counts.

If, however, you don't have this spelled out in the contract, the client paid the 50%, you did the work, and now the client is unhappy, this is a situation of intense negotiation and our opinions don't matter. All that matters is what you negotiate with the client.

I recommend that these points get put into the initial proposal made to the client so that it is spelled out as far in advance as possible.

The size of the project makes a difference as to how the early payments are structured. (A small project can be 50/50 while a large project might have 10 payments.)

It is also very important to spell out when a project transitions from being fixed price to hourly. Spell out when the client's requests for changes become the trigger to stop the fixed price, how much per hour, and what the new billing cycle will be. I had one project where the initial price assumed no changes but the price should handle some changes. When I reviewed it, I was about to start losing money because of all the changes. That became an intense negotiation to change the contract.