When to make client pay

How do you guys set payment due dates for your clients for web projects?

Right now we do it where initially the client gives us a deposit of around 40%. Then when the project completes they give us the remainder 60%.

However in my experience, once we get into a project, it’s not long before costs of labor surpasses the initial deposit and we start going on the negative. Then, when the client starts demanding for changes which were really not in the contract, or things that are just hard to set in the contract (like design like or not like), they end up with all the leverage.

If we don’t yield, the client threaten to not pay and we lose money. If we do yield, it sinks us deeper in terms of overhead.

I am thinking, at each point in the project, we should always be cash positive. Client pays in advance for each part that needs to be done before we actually do it. This way it’s easier to pay for staff costs and also positions us so that we have more leverage in the whole thing.

What do you guys think of this?

There’s no perfect answer since everyone has their own way of working. You’re on the right track though because deposit up front/balance on completion is a popular method. Other people might work differently such as 33%/33%/34%.

With your example of extra work hours being put in, this is commonly called “scope creep”, ie where the actual work involved exceeds the original specification. This is where having a contract comes in handy. A contract defines exactly what work you’ll be doing and anything over and above is extra.

For larger projects it is worth considering breaking it down into several stages, then getting money up front for each stage. That way you never work in the negative and if the project is stalled by the client at least you know you’ve been payed.

I would say it stands to reason that you should keep a “reserve” of money in your business for project to project costs (and pay yourself back sequentially as it’s required). I don’t think many clients would appreciate having to put over 50% down as a deposit (might make them feel nervous) but if you ensure your business has some overhead capital, it gives you the necessary assets to avoid such incidents reoccurring. So perhaps keep a couple thousand in the business bank account for “ongoing costs” and by having the money available, you’ll stay cash-flow neutral before the project ends (making your positive). :slight_smile:

Having a good contract is always great. The only thing is, it’s not so easy to lock down every spec and item into a contract. For instance, “design”. You can create the next Mona Lisa painting and someone won’t like it. I really don’t know how to put that into a contract, other than by specifying the # of work hours allotted.

With that said, in my experience, clients are always looking to change this and that. Some are more difficult than others. At least if you are pre-paid and not on the negative, it becomes that much easier to deny scope changes. It’s when you’ve only collected 40% deposit, but have already done like 80% of the work that the client’s demands become difficult to refuse. And they know they have you by the balls, sorta speak.

Don’t know if you guys have faced such situations.

The standard 50% now, 50% later is good but 33% now, 33% during and 34% at the end might work better for you?

As for the design phase, always sit down with the client. In person is best but there are alternatives such as phone, webcam, web chat and of course and last is email. Make sure you get a clear idea through example of what they want. Have them provide you what you need to get going. Also state in your contract/agreement what types of changes are included in the design fee and which are not. Perhaps lock in a layout before the design elements are added.

I usually present a payment plan to the client before I start the project. I guess this is the best practice.

But for a selected few clients, I take the whole after I finish.

No matter what there would be situations when we would loose some money, its just unavoidable.