Is it common to demand deposit/retainer to avoid payment disputes?

Question

I am in a position where I am negotiating the terms of a contract with a client overseas. They agreed to biweekly (every two weeks, twice a month) invoicing and payment via direct deposit into my account here in the States. However, should they ever refuse to pay me, I would be in the hole for two weeks worth of work or even more should I decide to continue working for them.

Considering that risk, I asked that they pay me a biweekly retainer/deposit, which can then be either returned to them at the end or used for the last two weeks of the project. They do not feel good about it as they want all service payments to be "in arrears".

I am just curious whether this demand is common or not. In my reasoning, it is similar to taking a deposit from a renter in the amount of one month's rent or a deposit a plumber would take to absorb any materials (equivalent to which would be my time spent working on the project).

Is there any suggested middle ground between what I am requesting and their position?

Answer 1

It's completely reasonable to want to protect yourself in the event a client 'disappears' or refuses to pay for work completed.

It's a common practice in some industry's (development & design) to ask for 50% upfront so that time is not spent working without pay.

In this case, I would, personally, ask for 25% of the bi-weekly total to be paid upfront and the other 75% to be paid during the normal invoicing period. This could also be 50% of 1 weeks pay paid each week but that makes things a little more complicated in my opinion.

There needs to be a level of trust between a client and contractor but there also needs to be a contract in case there is a breach in that trust. That's what this 25% upfront is.

It's to keep you protected if you do work for up to 2 weeks without being paid. You deserve to be paid for your work. This 25% protects you in the event a client walks away without paying their balance to you.

You're trusting the client to pay you the remaining 75% bi-weekly.

Contracts often talk about what happens if you tell trade secrets, don't deliver work, use company resource elsewhere, etc, etc. But they rarely protect you. Hence the down payment.

Don't sign anything that protects the other party but not you.

Answer 2

For many clients I ask for a non-refundable 50% deposit. I just can't be in a position to trust absolutely everyone when it comes to my income. However, those are more singular projects. Not ongoing agreements.

In most of my ongoing agreements, there's a balloon payment up front to cover initial configuration/set up, the smaller reoccurring payments. The initial balloon payment is requested as 50% in advance, then the remaining 50% is the first invoice the client receives. And regular invoices will follow. This essentially puts payment slightly ahead of the work. And face it, you'll know if payment is an issue after 3 or 4 invoices so you can slow work to match (with an explanation).

In your situation, I would understand the client's position that an ongoing relationship with regular payments is a recipe for someone to get the short end of the stick, as it were. Even if that stick arises through no fault on any party. Face it, they run the risk of paying you then you getting "hit by a bus", just as you run the risk of working and they get "hit by a bus".

To clarify, the term "biweekly" can mean either twice a week or every 2 weeks. I tend to use "bimonthly" when referring to every 2 weeks and I use "biweekly" when referring to twice a week. Essentially I use them as ["bi-the period I want to split"]. So.... I'm going to assume you mean every 2 weeks.

I'd negotiate a half payment in advance. You get one week's pay in advance and they get the final week of work without the need for payment. This way you both take on 50% of the risk involved in the relationship.

Answer 3

First off, good on you for trying to come up with a solution! I'd love to take your approach for many benefits, but the client obviously feels he would lose out.

When you make a contract or work agreement, both parties need to agree. This is why you must be specific in making the contract/agreement in advance.

My suggestion would be to use an Escrow service, and withdraw from there. It costs the client money (I wouldn't absorb those costs as the Freelancer!), but it also makes the money feel more secure to both parties - you get money when the client agrees, the client gets money when you agree. Great safety net, but check some other questions out about escrow.