1) Contracts

I have to say that I’m not a fan of those contracts written in impenetrable legalese – those just look plain scary and I’ve found them to spook reasonable clients. On the other hand, some contracts are nice plain English – I much prefer that approach. And why not have a clause in your contract which details your ‘payment schedule‘ for the project; this lays out, in no uncertain terms, when you expect to be paid, how much, what happens if you are not etc. Don’t leave these crucial details up to an unspoken gentlemen’s agreement because, if you do, at some point it will turn around and bite you on the arse. Hard.

2) Deposit

Before a project begins, it is important that the client has parted with some money. If it is a new client then this is really, really important – talking about websites is one thing; putting your hand in your pocket to kick off a paid project is another.

How much a deposit to ask for? Well, like everything in life, that depends. Some people say 50%. Personally I typically aim for around 25% as I like to smooth the money over the life of the project (my projects are around 6-20 weeks elapsed time). By all means request a larger deposit for a new client if you are worried about getting your fingers burnt.

If they don’t want to pay the deposit (and can come up with no reasonable reason why not) then you need to walk away. Shaggy dog stories of when money may turn up should really set your alarm bells ringing. The only occasion I’ve been flexible here is when I’m dealing with very large companies such as multi-nationals who may have procurements systems which are set in stone; in those instances you just need to use your best judgement.

3) Regularity of Payments

A project typically has a set of phases; discovery, planning, design, build, testing etc. I tend to make the end of each of these phases a billable checkpoint where the client agrees to sign off what has gone before; this then triggers an agreed part payment of the overall project cost.

Note:  I have to hold my hands up here; sometimes projects drag on longer than they should (not normally my fault I hasten to add!) – and on these occasions I’m reminded that I really should set firmer deadlines for when stuff should happen so that, even if something hasn’t been signed off, ‘x’ money could be released. My staff need to be paid each month; so I need to make sure that money comes in. I’d be interested in what time related clauses you ladies & gentlemen use.

4) Final Payment

I normally state that the final payment is required as and when the website is ready to go live; i.e. the project is fully paid up before we press the big, red button. This has another benefit in that the conversation is then about support post launch; instead of being caught up in an endless cycle of changes which has somehow been lumped in as part of the original project (we’ll be delving into this nest of vipers in a future article).

5) Late Payment Fees

Put these in your terms and conditions. The GOV.UK website has some excellent information on this. Basically you can charge a set fee for debt recovery and interest on the outstanding debt. The debt recovery fee is handy to compensate you for the mucking around you have to do chasing people (remember, that is time which could have been spent working on billable projects or playing with your kids).

Again, some larger orgs seems to have insanely long payment terms and they aint gonna change them for you. The important thing here is to find out what their payment terms are first, find out what is negotiable and then see if it’ll work for you (and, in these circumstances, what we cover in point 8 might be useful).

6) Cancelled Projects

If a client cancels a project part way through, you should make sure that your terms and conditions cover your ass. You might think “but it’s ok, they’ve paid for the work done to date” but you’re missing the point: you’ve budgeted your company resources (even if that’s just you) on delivering that project; perhaps you’ve even turned work away because your pipeline is now full. Why should you now be penalised because a client has created a large hole in your workflow?

Obviously it pays to always try to be reasonable and fair with clients but reasonableness & fairness only go so far. If your terms & conditions state that if a client cancels a project, the total cost of the project is due or the total cost of the current stage is due (irrespective of how much work has been done) then you have more options if things get hairy.

7) Refuses to Pay

Luckily I’ve never encountered this (although I’ve hit pretty much every other issue!) and the circumstances where I normally hear about this happening typically involve a lack of contract, terms & conditions, clear specification etc; you really want all your legal boxes ticked in case push ever comes to shove.

An easy option is to get a legal looking letter sent to offending client; that’s often a quick & cheerful way to shake things up a little. One such company who offers this service (and more) is Thomas Higgins.

Seeking firmer legal advice is your next recourse. You may end up going to the small claims court. Don’t expect this to be an easy process though and, if that debt isn’t huge, you may well be tempted to write it off as a bad experience and think hard about your process so that you don’t make the same mistakes again.

8) Factoring

Factoring is where you get paid (regularly) by a third party based on the invoices you raise; if the client doesn’t pay, then this isn’t your problem and it’s all handled by the factoring company. The factoring company take their cut; but that’s the price you pay for the added security.

I’ve not used factoring but, thinking about it, it could be an option for the larger clients who pay on on long terms (e.g. 90 days);

Here’s a link to a factoring company I’ve found online but I’ve not used them so please don’t take that as a recommendation.

Parting Shots

Please shout out if you have anything to add to the above or with any comments you’d like to make.

Joel

This upbringing has left the shadow of working class guilt; the thought that making money must be bad. That it must intrinsically mean that someone, somewhere is being exploited; that somehow we have done something that is corrupt & rotten. Well, let me paint you a different picture; greed is good.

That’s a pretty incendiary thing for me to type; for all the reasons I’ve hinted at above. And certainly because of the Gordon Gekko connotations.. And, in fairness, I don’t really mean greed; I’m actually talking about profit here.

Profit: The Besmirching Party Pooper?

Sometimes we, as an industry, seem ashamed to turn a profit. To treat profit as if it is some sort of besmirching party pooper which gate crashes our festival of creativity. The thing is though, we can’t be ashamed of talking about money. And we can’t be ashamed of making money.

We do what we do because (hopefully) we genuinely love web technology and how it can help people. It’s a fast changing industry and that suits us down to the ground. But, as hinted at elsewhere in this blog, those skills and that passion alone are not enough to run a successful business. And, at its heart, a successful business needs to make decent money.

The Working Week Fallacy

Perhaps you are in a situation where you bill hourly (which helps divorce you from the expensive threat of ‘scope creep’ on fixed cost projects); if so, make sure that your hourly rate really covers all your costs. A big mistake I made when shifting from contracting (a bum on a seat at an agency) to freelance was doing my calculations and working out that I needed to charge (say) £25 per hour to make a decent living. The mistake I made was not realising that, in reality, you don’t bill all your hours and you are only productive for (say) 60% of the week. How you bill needs to reflect this or you won’t be in business long.

You need to be charging enough to pay for your new MBP, to allow you to go to conferences (hint!), to pay for training, to allow you to spend a day in a gallery or exhibition recharging your creative batteries. Yes the client needs to foot the bill for this (I’m not saying as directly in a line item on an invoice!) because it is all of this which allows you to be good at what you do. And that is what the client wants; you to be good at your job as that is of benefit to them.

The Employment Dilema

If you employ people or freelancers then the business needs to make money on them per project. Otherwise you are simply a clearing house for work which is actually losing you money; and that will ultimately result in only one outcome.

You need to look at projects with an eye to how your business can make money on this; sure be giddy with excitement with what you can do for the potential client but if they can’t afford your services or can’t afford the full service; then you need to react accordingly. By all means choose when you want to work for below cost or for free (e.g. for a charity*) but let that be your active choice rather than something you simply drift in to.

(*Note: I’ve been sat across from marketing managers who plead poverty but who are earning more than you are. Again, choose carefully when you give your time for free/below cost).

The Bottom Line

I earned the best money when I was contracting on an eCommerce site for a large supermarket; but I hated the job – so money isn’t everything. I’ve never been happier working for myself but the toughest days all revolved around not having enough money (caused by a multitude of mistakes). The stress that causes flows over into family life and effects everything you do. The flip side, is that when you start getting some of the basics of money right, it has the same ramifications outside of work; everything is happier/easier. You can take time off, go on holiday etc without stressing about money etc. And, guess what, that allows you to be better at your job.

Our business’ need to make money.

Joel

p.s. The Business of Web Design conference is coming to Cardiff in July 2014 – there is a call for speakers here.