My friend and business partner in absentia taught me healthy payment terms:
- Never start any work without a signed contract
- Never start any work without being paid at least 1/3 of the project price up front. Only that way can you know that the client is serious and willing to put his money where the mouth is
- Require 1/3 of the payment up front, 1/3 upon the mock-up, and 1/3 upon delivery and sign off of the final product
I agree with her. However, in reality I don’t have the confidence to dictate the terms because I need the work too much, and the clients don’t need me enough.
The online store project
For example, back in May I agreed with a local importer, Max (fake name, obviously) to set up and manage an online shop for him as a partnership. The goods are also sold through a physical outlet which he manages. I will be paid commission of the online product sales and am responsible for managing the online shop and payment processing. I will also be paid an hourly rate for my time spent setting up the store and writing the website content. We have a signed contract (supplied by me) that outlines the conditions, and I didn’t commence the work before it was signed. So far so good.
The deadline for setting up the online shop was 1 June, so the work has all been done. However, the arrival of the goods was then delayed repeatedly, now till late August. There are just a few products in the online store for now and there haven’t been any sales. Max has told me to wait and not do any more until the goods are all here. There will now be another company involved to do the remaining product descriptions and photography for free as part of a coupon scheme deal. They will then charge a commission on sales referred through their campaigns. Max will contact me when they have done the descriptions and photos, so I can then add the new arrivals to the store.
The bottom line is that there have not yet been any sales, and I have not yet sent an invoice for my work. Work done includes setting up the template online store (no web design), writing 5 web pages, manually entering shipping rates according to zones and weight classes, setting up PayPal account, eBay account and eBay developer account for the company, setting up Google Analytics, corresponding with the e-commerce host to resolve issues, and so on.
I haven’t even sent the invoice yet. Initially when the goods were delayed I didn’t do it because I was waiting to write the remaining product descriptions and take photos. Then the arrival was delayed again and again, and now what I was waiting for won’t happen. My work done has taken about 30 billable hours and about 40 non-billable hours (research and meetings). I am wary of sending the invoice now because I know that Max:
- Hasn’t seen any cash flowing in yet, so he doesn’t feel he has got anything real out of it yet
- Doesn’t understand the value of ‘fancy’ work such as copy writing and web design
- Has indicated previously that paying money is very painful to him
- If he pulls out now there is not much I can do, and I will lose the potential earnings from commissions
So, how did I get myself into this? Well, I guess I forgot to follow the rules. Max has never paid me anything, so I don’t know if he ever will. I have something to lose, having invested my effort and not yet reached the part of the deal where I can earn commission, so the power is in his pockets. The hours have run up into real money (although still < $1,000), and reached the threshold where he might feel tempted to make a fuss and question the value of the work if he has changed his mind in the meanwhile and wants to pursue new ideas (like the coupon scheme). Which takes me to the last point: time has passed, and things tend to change over time.
Learning: if upfront payment is not an option, then always send an invoice straight away when the work is done. Then don't do any more work until it has been paid and there is a new clear agreement about any additional work. That's what I would have done if I could rewind the time backwards a few months. I didn't know that the project would continue to be delayed, but I should have factored in the risk. What I have done here is getting myself stuck in a powerless situation.
Max paid the invoice without any hesitation when I finally put it in front of him.
My worries about not being paid cost a lot of energy and bad feelings, which I could have spared myself had I invoiced earlier.
Learning: don’t delay money matters, keep them up front.