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I'm a web application developer in the UK and am looking to start out in freelancing. I'm in the progress of writing up a Terms of Engagement (ToE) and am making some decisions about how best to structure project payments.

I plan to request a Requirements Analysis from clients, either writing it with them or asking them to produce one and then reviewing it together. My intention is that this will form the part of a written agreement, together with a pro-forma contract for the protection of both parties.

As part of the ToE I'd like to set out a payment approach and I am finding conflicting advice about the fairest way to do this. I like the idea of milestone payments since I imagine it will develop increasing trust as milestones are completed. Also, in the unlikely event something goes wrong in the relationship, the client will have taken X fraction of a project for X fraction of the cost, which seems fair. However, other folks suggest 30 day terms are common, which would put an unnecessary and lengthy delay in project progress.

Does anyone have experience with balancing these things? I should imagine smaller clients will just get on and pay so that a deliverable can be handed over, but is this a problem with larger clients? Is it wise for freelancers to insist on milestone payments, even if larger clients have a Finance Department policy of paying 30 days after invoice?

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    Although I never work on 30-day policy (mine is rather unofficial, pay-asap), if you're working for the UK client and you have a good contract, I don't find that policy bad. Of course, don't suggest it yourself. Also take upfront which will cover the gap between start day and 1st payment day. – Peter MV Jul 22 '15 at 10:10
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    Whatever payment terms you agree, if working for/with a Big Company, be prepared for them to be exceeded! – Andrew Aug 7 '15 at 6:29
  • While "Payment due with Invoice" is ideal, 30 day terms are quite common. Ultimately, this is down to negotiation, and do get it in writing! – Andrew Aug 7 '15 at 6:30
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There is no conflict between milestone payments, and delayed payment terms.

Some contracts with milestones will have immediate payment. Some contracts with no milestone partial-payments will be payable immediately.

Some projects will have 30-day payment terms with no milestones. Some will have 30-day payment terms on interim milestone payments.

In an ideal world, you get payment for interim deliverables, and immediate payment terms.

Euan's 6 recommendations

  1. Only work for clients that you reasonably expect to actually fork out the payments which are correctly invoiced.

  2. Trust, but verify.
    Give them an opportunity to demonstrate their payment behaviour, early in the business relationship.

  3. Have as short a payment period after presentation of invoice as you can successfully negotiate.

  4. Continue working between presentation of invoice and the due payment date.

  5. Retain any deliverables until payment has cleared.

  6. Make sure the wording of the contract supports point 5.

  • Actually what matters is invoicing. You invoice at completion/delivery of the milestone, using some payment terms, but whatever these terms, the amount starts being due/claimable from that date, even if the project stops there or trust disintegrates. – Harry Cover Nov 24 '15 at 20:50
  • Thanks for your thoughts, Euan. OK, so let's say you have 30-day payment terms on milestone payments. You complete a milestone, issue the invoice, and send it to your customer. Do you stop work until you get paid, possibly for the full 30 days? You might risk it with an established client and press on with the next milestone, but would you - and should you - with a new client that you don't know? – halfer Nov 24 '15 at 23:10
  • Think of it the other way around. Would you do work for that client if there were no milestone payments, and it was payment on final delivery? Is there a way to withhold the results of your work until payment is made? Is the contract well-drafted, so that you have recourse under the law if things go sour? If the key concern is "Will they ever pay up?" it's worth baking several early milestones into the schedule - this means that you get some practical early experience of their payment habits. – Euan M Nov 25 '15 at 1:54
  • As has been said - the ideal setup is milestone payments with immediate payment terms. This is part of the initial contract negotiations. Perhaps start off pushing for immediate payment or strictly-7-days, and allow yourself to be pushed down to strictly-14-days. – Euan M Nov 25 '15 at 1:55
  • To be clear, are you recommending that one stops work for the time between the end of the milestone and the payment for it? – halfer Nov 25 '15 at 16:08
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If you're working freelance, 30-day payment terms with ANY client is just a terrible idea, IMHO. Don't be fooled into listening to some jerk manager who tells you, "well, that's our company policy" and settling for that answer. You're the captain of your own ship, and if you want to continue being the captain, you are not going to be stupid and allow any passenger to steer your ship into the rocks for you.

I always look at it from this frame of mind. I've worked in corporate situations where there's the occasional company party, with caterers. And I always note that the caterers get paid right away and aren't subjected to that 30-day terms crap. So that means money is available! You have to be willing to stand your ground on terms.

Net 15 is much more reasonable if you are working hourly. If you are working milestones, net-on-receipt is best. You've done your hard work and there's no reason to be stressing over getting a check while ALSO trying to work the next milestone.

  • While I agree it's great to be paid right away, I have yet to see any companies paying the caterers for their parties as it's happening. I used to work for a hotel that did LOTS of catering, and they only got a small deposit up front, and the rest was billed 30 days later. Is it normal elsewhere that those types of outfits get paid as services are rendered? – Canadian Luke Nov 25 '15 at 17:46
  • (+10... if I could upvote that much) That 30-day isn't even always offered anyway by companies unless the client "qualifies" for this... So I agree with Codenoire, no reason why a freelancer or mall business should accept it. In fact, before I got everything 100% pre-paid, I used to actually give a rebate to clients who'd pay within 1-2-3 days; so that's the opposite technique of the 30 days terms and money comes in very quickly since there is a self-interest for them to pay fast. Anyway it's rare clients will take more than a week, especially if you stop all work until payment is done. – go-junta Nov 29 '15 at 19:08
  • Thanks codenoire for your thoughts... people still use cheques? :-). I like @go-junta's suggestion - offer a discount for immediate payment. – halfer Nov 29 '15 at 19:25
  • The US is wayyyyyyyy behind europe in terms of processing payments. The discount approach doesn't work in big companies because it's usualy going to be quite a hassle for the person who approves the invoice to fast-track its movement to the person who's going to issue the check, and make sure the discount "window" doesn't elapse. – Xavier J Nov 30 '15 at 15:50
  • Yes you're right, bigger companies or corporation will stick anyway to their terms and don't care much about rebates since... the employee who manages the accounting has no self-interest in this. Plus they have their own way of doing things. And yes @halfer ... they're the ones still paying with cheques most of the time and the good old snail mail! ;) The rebates work well when you're dealing directly with the CEO or with someone close to the CEO in the hierachy, or someone who actually has a self-interest in making the company saves a bit of money! – go-junta Dec 1 '15 at 9:35

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