On Deposits, Working For Equity and Net 30 Payments
Let’s face it. It’s tough to talk about money, but it needs to be done, and brought into the open.
Many independent web developers receive questions about what type of payment structure they will accept before a project starts. Do you charge a deposit? Do you work for future equity? What’s your policy regarding Net 30 (or longer) payments?
While I can’t speak for other shops, my short answers to these questions are yes, I require a deposit before starting work. No, I don’t work for equity. And I avoid working on contracts where payment is unnecessarily delayed.
Here are the reasons why I structure payment arrangements this way.
Deposits Are Non-Negotiable
Web design and development is a specialized professional service, that returns great value to the client. The work a web design shop does directly affects the client’s revenue and lead generation capabilities. Like other professional service providers, I require a deposit before beginning work on a project, like a lawyer or contractor would.
Deposits are a mandatory requirement because otherwise, all the project risk resides with the contracted studio (that’s me). I believe this is a reasonable request, and should be a standard for everyone in the web industry.
Do You Work For Future Equity?
Every day, there are millions of entrepreneurial ideas talked about, all over the world. The reality is that only a select few of these will become multi-million dollar businesses, and a very small number will survive more than a few years.
What surprises most people is that most business ideas have already been done before. Investors know that most startups will not survive, but investors can afford to lose 99 times out of 100, so long as the one success becomes a household brand.
Working for equity may be something that interests other developers, but for myself, the ratio of risk to potential reward is too high to work for free. If an entrepreneur does not have funding for development, this is also a signal that their idea has very little runway capital, and probably will not survive anyway.
For these reasons, I do not work for promises of future equity.
What About Net 14/30/60 Payments?
I’m familiar with Net 14 payments, and have done them in the past, contracting for a few larger agencies. Some larger web agencies in Sacramento and elsewhere do this because of the way their accounting service is set up. Some do this because their cash flow is tight, and they are trying to collect their own payment from their clients.
I have heard horror stories of independent designers working with clients on Net 90 terms. That is madness. Waiting three months to get paid is unacceptable. While I understand that bureaucracy exists in larger organizations, those terms seem very manipulative and one-sided to me.
When the hiring party withholds payment as long as possible, it builds deep feelings of resentment between the agency and client. The only reason a company asks for long-term payments is to have the advantages of having employees, without paying the extra costs associated with hiring a W-2 employee.
Have you Ever Been Stiffed?
Have clients tried to avoid their final payment to me before? Yes. This has happened to me only twice. In both instances I collected all of what was owed to me, but it soured me on ever working with those businesses again.
When people seek your services out, and intentionally try to avoid final payment, it is a violation of trust and respect. There’s no going back after that. This is why I say no to exploitative contract terms.
My preference is to not work with companies that defer payment even after the finished work is delivered. The reasons are twofold.
The first reason is financial. A business needs to be profitable to survive, and continue serving it’s customers. If I accept terms which delay payments for work delivered, that is bad for the health of my business, so I say no to those terms.
The second reason is not as apparent. When companies seek to delay payment to service providers, this shows disdain for the work and the people who do the work. It shows we have deep philosophical differences about what is acceptable in business relations.
Don’t Just Take My Word For It
Web design legend Andrew Clarke dropped some knowledge bombs on the third episode of Unfinished Business back in 2013. He summarizes the correlation between payment behavior and the health of a working relationship.
If you’re working for yourself, you’ve probably got dependents. You need to be able to go the supermarket…you shouldn’t be putting them at risk.
One of my biggest bugaboos is people who hire contractors and then don’t pay them immediately. Or leave them hanging in the wind.…
It comes to the subcontractor finishing the job and saying, “That’s great, I’m handing this stuff over, can I be paid now?”
And the guy who does the hiring saying, “Yeah, well, actually we don’t have the money in to pay you — because we haven’t been paid yet by the clients.”
And that’s an absolutely despicable thing to do.…
If you haven’t got the money sitting there, ring-fenced to pay somebody once they’ve done the work — don’t hire them.…
Do something! Not carry on like life is rosy and leave someone hanging in the wind.
— Andrew Clarke, EP03 of Unfinished Business, January 2013
What Types of Payment Terms Produce Good Work?
The best working relationships with I’ve ever had with clients are when I’ve been paid as soon as the work is done, and my invoice is sent.
When I examine my favorite projects and clients, the ones I consistently do the best work for are those that pay in a timely manner. Knowing that I will get paid right after I invoice a client gives me one less thing to worry about. It solidifies the trust and good feelings in an ongoing business relationship.
I will always make room on my schedule for clients who respect my time and efforts.
Do You Ever Do Pro Bono Work?
When time allows, I am open to doing pro bono work. It has to be for a worthy cause, and because it is given as a gift, the client must agree to two reasonable concessions.
When I agree to take pro bono work, the client must allow me to take the time necessary to complete it. First, I dictate the pace at which I work, since I still need to take paying work to support my business. Second, we both agree on the scope of the work to be done, after which, there is no complaint about the scope.
I am currently able to take only one or two pro bono cases per year, and they have to fit my criteria, but I am willing to take these special cases. Pro bono clients are treated the same as paying clients — meaning their projects are given the same attention to detail as a regular project.
I hope this helps answer any questions you may have about payments, and why I enforce the policies I do. It’s my goal to be a transparent as possible about my process. Let me know if you have additional questions in the comments below.