When a client drags out the first payment

I used to be a good guy, starting work when a client tells me they will move forward — even if a first payment has not been received.

No more.

Now I only begin work when the client has paid me 50% (or whatever we agree upon) up front.

For instance, I’m working with the CEO of a publicly traded company selling a nifty software solution. He’s agreed in principle to a long-term contract, with first payment due up front. He’s sent me tons of materials for me to get started, and is urging me to begin because he faces a key deadline. But he hasn’t sent me a signed contract or first payment.

On my side, I want to get started. I know that his urgency will soon become mine, and fear that I will be blamed if deadlines slip because I have started on the project. Plus I like to show people that I go above and beyond and have a can-do attitude. So why not start now in anticipation of payment?

Three reasons:

One: I happen to have a colleague who also works with him. This colleague has informed me that the CEO of this company is famous for beating down contractors — paying late, renegging, etc. He gave me two examples where this has happened, to him and to one of his associates.

Two: If I start now, I lose my leverage because I show that I am willing to work when he hasn’t performed. Money is leverage, on both sides. If he really has an urgent situation, wiring funds right away should not be a problem.

Three: I want to be on equal footing with him as a professional and an executive. If I start the work now when he hasn’t met his part of the bargain, I lose that footing, and potentially his respect. I become just another vendor that he can beat down.

This CEO is not so different than most savvy business people. He’s tough and doing what he can to get the most out of his contractors. It is up to me to hold firm and have some tough conversations with him.

So I have sent him an email indicating that I can’t begin work on his project until he sends me a signed contract and wires the first payment. At the same time, I have let him know that I may have to push his deadline back if he doesn’t act immediately. This email works every time.

Hold your ground!

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  • http://elysiansystems.com/ leadegroot

    Well, of course!
    However – in order to appear a really can-do supplier, I sometimes start work even while denying I am, in order to deliver quickly when they do pay.
    This is risky – if the contract and $$ never materialises then I’ve just wasted my time; generally I don’t use this strategy when I have other paying work on.

  • Sergeant

    This is exactly what I needed. The first reason isn’t very usefull though because I never heard these stories about a company YET.

    But the reason that you gain respect if they pay you up front sounds pretty logical.

    I was wondering why a first payment would be usefull, because, it says you’re ‘hunting’ for your money. And I don’t want to give my clients that idea…

    any ideas on that one?

  • aneitlich

    Sergeant,

    Money is a symbol of commitment. So I’m not hunting for money. If clients push it (and they rarely do), I say, “I need your payment up front to show me you are serious. Also, less scrupulous people have burned me in the past. Most of my clients understand, and this request is standard in the industry.”

  • http://www.rswarren.com Robert Warren

    Sergeant,

    Holding out for a deposit or retainer isn’t a sign of desperation – it’s actually a standard business practice. It says that since you’re a real business, cash flow matters; more than that, it says that you’re unwilling to waste your time on so-called clients who are simply looking for contractors desperate enough to work for free (or virtually free). It separates the serious from the non-serious real quick. It also says that you’re busy enough with clients who *do* pay up front that you don’t need the ones who don’t.

    If a client is serious about a project and serious about hiring you, they won’t blink at a deposit.

    At the same time, presentation counts. If you come off as desperate (“Could you pay half up front? PLEASE? I have rent to pay this week!”), your clients will treat you that way. If however you keep to professionalism, state your terms up front (preferably right on your website), don’t negotiate them, and justify them simply in terms of professional standards, the good clients won’t smell blood on you. And you can live without the bad clients.

  • http://www.plainsimple.org gilbertglee

    Hi Andrew,

    You didn’t mention this on your post but I’m guessing you’re using a contract and the 50% deposit to seal the agreement. I use the same practice with my business and, in my experience, it’s the best thing one can do in starting a relationship with a new client.

    Your points are all correct (again, from my experience).

    I have been thinking about sharing the contract I use so other web designers can take a look at it and maybe use it for their businesses. (I will need to modify one of them and remove a client’s information.)Do you have one you can share as well?

  • http://www.webconxeon.com elemental70

    Yup. Bang on! I only ever designed a site (small) ONCE without securing a contract or payment. It was not in this country and fortunately the amount was really small. Since then I never ever work without a contract and at least 50% but most times 75% up front.

  • webguy

    This is one of the most useful posts I have ever read. I develop websites with a partner and we always take the deposit up front. On a recent project, we were jerked around and waited and waited and waited for payment. I convinced my partner that we should continue work even though we don’t have payment. The client kept demanding to see our progress and I told them without payment, they can’t see anything.

    Anyway, we finally had a contract signed and we launched the site. Two days later, we received payment. Even though we were paid in full, it caused way too much stress and was a pain in our butts. We have both read this post and have vowed to live and die by it in all future endeavors.

    Thank you!

  • Sergeant

    75%?

    wow that is a lot man…

    @ gilbertglee

    Can you post some sort of contract? I would like to see one to help me out a bit. I’m just starting with things like this and any help is appreciated.

    Thanks in advance!

  • aneitlich

    Here’s the language I use, in a section called fees. It’s really simple. Note that everything I do is fixed cost (value-based; I never lose), which simplifies the language:

    Fees for this project will be $10,000. Half, or $5,000 will be paid before work commences and on signing of this agreement. 25%, or $2,500, will be paid on March 15 [or when X is delivered]. The final 25%, or $2,500 will be paid on completion of project, or March 30, whichever comes first.

  • http://www.solas.cc MCsolas

    Get them to agree to things in email, then save the emails. Always helps remind then when you send their own words back over to them. OH .. yeah I guess I did say that, heres your money.

  • http://www.delyrical.com davidjmedlock

    If you get their signature on a contract, it’s even more powerful than emails, though… And more professional than saying “Hey, you sent me this email where you said you’d pay…” With a contract you can say, “According to the terms of our agreement, I can’t begin work until I receive the deposit stated in the contract. I’m ready to hold up my end of the contract, but in order for this project to be successful we’ll have to work together and that means that I need you to take care of the deposit as quickly as possible so your project can be delivered on time.”

    This leaves things in their hands and they’ll know that if they don’t act quickly, they won’t make their deadline.

  • tcwatts

    I’ve recently had a bad experience where the first 50% was paid, but the remaining was renegged because of various obscure reasons. In the course of the development a lot more was added on, but the client wanted us to almost absorb those additions (even after signing estimatess!). What transpired later was that we had to charge them premium for small changes to recoup, which obviously will not work well for a long-term relationship.

    Has anyone faced similar situations?

  • http://www.plainsimple.org gilbertglee

    I thought I would share this link I read today:

    http://theblacklistmag.com/blacklist02/?Editorial_-_10_Tips

    Seargent: I’ll have to get that to you tomorrow. Sorry, I’ve been real busy.

  • http://www.yvandermeer.net Aquarius

    I find it practical to divide a project into phases:
    * Phase 1: design
    * Phase 2: prototype
    * Phase 3: development

    How would you divide the payment requirements in such a situation? Would you still require 50% up front? Or perhaps 25% to start phase 1, 25% to start phase 2, etc. and the final 25% upon project completion?

  • http://nervecentral.com Nerveman

    We also have learnt from experience…

    Now we only start work once we receive a signed contract and first payment (50%). We also include a scope of the project in our standard contract that details exactly what is, and what is not included in the project. It takes time to write this scope document for every new client, but it’s worth it as both parties knows exactly what is expected… no sneaking in additional functionality!

  • Feliciaf

    Good advice! However, occasionally, depending on work pressures and amount, I’ll start the job and risk not getting paid for it or not getting the amount agreed. I put this down to practice!

  • http://www.plainsimple.org gilbertglee

    Sergeant – Here’s the sample contract that I use for a “typical” web design project. It’s very basic so I’m sure you can add more things to this. It’s been very effective for its simplicity.

    http://www.plainsimple.org/resources/SampleWebDesignContract.doc

    Feliciaf – Hmmm…I’m not sure if that is a good practice to follow, even occassionally. The only way I can see doing that is if I had a very, very close friend asking for the job to be performed and I know their character.

  • Sergeant

    Thank you, this will help me to get things on the road!

  • Benjamin Cortes

    Excellent article! I

  • http://www.eleytech.com beley

    I know this is an old blog post but I’d just like to add that I NEVER start work without first receiving the deposit/retainer and a signed contract. It starts a series of events such as adding additional work that was not agreed upon (for no additional money), moving up deadlines, etc.

    I start work after I have received the deposit and contract and as Andrew said, sometimes that pushes the original deadlines out. I also (in web development) don’t upload the product to their server until I have received the remainder due. I will let them view it on a test area of my server only.

    This does not show weakness or desperation to get paid, it shows that you are a professional. I have more than one project to work on… and I can’t give priority to one that hasn’t even paid me yet. That would be unfair to my other clients and to me. So if someone wants my time and expertise, they need to compensate me for it as agreed upon.