Credit and Risk - getting paid for your work
I was listening to the excellent Unfinished Business podcast today. I’ll ignore the mention of people who run in the snow, but I wanted to touch on some of the things that have worked in terms of pricing and getting paid over the last 11 years or so of running edgeofmyseat.com.
You are offering your clients credit if they do not pay in advance
Keep this fact in mind and a lot of other things will make sense. Would you offer a stranger a loan of £4,000 without any agreement in place? That is exactly what you are doing if you do £4,000 worth of work on the promise of payment.
Your payment schedule should accurately reflect the risk inherent in dealing with that client.
The situation that you want to avoid is being too far ahead in terms of hours worked over hours paid for. How you stop that happening doesn’t matter. A large deposit, staged payments (I find tied to milestones works well), weekly billing are all workable and you might use different methods with different clients. However always consider how much cash you’d be happy to lend this person or company, unbilled time is the same thing.
When talking about risk, don’t think that because you have done lots of work for a company or person, they will always pay you. They are still as likely to go out of business as the next company. They may want to pay you, but with a company in receivership a humble contractor is about the last person to get any money.
If you are working for a medium sized organisation you may have a really great, trusting relationship with a key person. That person may well be chasing up your invoices and making sure you are treated well. Once they leave you have no guarantee of a continued good relationship, if it happens mid project and you haven’t taken care to keep on top of invoicing you may suddenly find it hard to get paid.
Something else mentioned in the show was what to do if the client is stalling over getting the site live and therefore it is hard to get the final payment. To prevent this simply include in your terms that if the project is stalled for more than a certain number of days you will automatically invoice an amount to cover the time spent to date. That way, even if it never goes live, you don’t lose out financially.
Finally, I loved Andy’s rant about people who subcontract part of the work and then say they can’t pay until the end client pays them. For many years we worked purely as an outsourced company, working for design agencies. I was always baffled as to how many people thought this perfectly acceptable. One company, looking at our 15 day payment terms said something along the lines of, “what happens if we haven’t been paid yet? We obviously couldn’t pay you first.” I told them my business would not be relying on another company’s ability to chase payments and that we’d suggest they only asked us to do work, if they could pay for it. We still got the work.