Do unto your clients before they do unto you

March 6, 1998
by Pat McClellan

How many times have your heard this: "This is just a proposal, so I can't pay you. But if we get the job..."? Or how about this one: "We're really stretched on our budget for this program, but we have lots of other programs we'll be doing in the next few months. If you'll give us a break on the price here, you can make it up on the other jobs which have better budgets." And this is one of my favorites: "I'll pay you as soon as I get the check from my client, I promise."

Clients, you can't live with 'em, you can't shoot 'em. Sometimes it seems that way, but I don't want to cast clients in an overly negative light. They're much like teenagers... not really "bad", but they will take advantage of you and push you as far as you will let them. Why? It's their job. If your clients are good business managers, they know that it is their job to get the most work out of you by spending the least amount of money and assuming the least possible risk. They know that good money management dictates that one should pay bills at the last possible moment, thereby earning the maximum interest on the assets. And that's just the good clients!

What can you do?

First, understand that you are not alone. Every one of us who has freelanced has had the same experiences: clients who don't pay on time (or at all), clients who want you to work on spec (no payment unless they get the job), clients who want you to discount this job and take the profit from the next one.

Let's attack these three issues individually, starting with the big one... getting paid. Recently, Wolf of armadillo multimedia posted some guidelines to Direct-L. With his permission, we post some of Wolf's thoughts on getting prompt payment.

I write an estimate for every job that I am asked to do. I don't start work until I have received a purchase order that refers to my estimate and the price quoted and a downpayment of a third. If jobs are bigger, I split payments into four or five parts, otherwise I take a third up front and the rest after completion. My estimate states that unless payment is received by a certain date, I charge interest on the outstanding amount - which makes it useless for companies to try and hang on to the money longer. Even though there is no legal background for it, as long as they confirm my estimate, I am safe and dry with this arrangement.
Don't give away your sourcecode until you have been paid.
Let a lawyer look at your contracts, or estimates. Make a set sheet with your terms and conditions, whch includes payment terms and makes sure you don't pay for couriers/travel/accomodation/extra demos etc. if you haven't estimated for them.

OK, I hear you. You can't afford an attorney. You're a little guy working for big corporate clients or agencies. Most of your brain cells are devoted to good design and programming, not business management and contract negotiation. You don't have a legal staff to negotiate your contracts, so it's easy to feel that you are on the weaker side of the negotiation. How many times have you signed a contract that you didn't even bother to read? If you find yourself doing this, just turn the contract over, get a red magic marker and write kick me in big letters, then hang it on your back.

For those of you who are allergic to attorneys, I strongly recommend picking up one of the many references which contain sample contracts for freelancers. This, at least, will put you on terra firma when you're putting together your next project proposal. I suggest you check out "Multimedia Law and Business Handbook", written by J. Dianne Brinson & Mark F. Radcliffe. This book (published by Ladera Press, ISBN 0-9639173-2-3) contains a disk with sample contracts, nondisclosure agreements, copyright info, and lots of great reference materials which are specific to our business.

Finally, payment by the client to you should not be dependent on when your client gets paid by their client. If you work for Bob's CD-Works and Bob hires you to work on a big job for MacroSoft Inc., then keep in mind that your payment terms are contracted with Bob, not MacroSoft. Bob takes your day rate and marks it up by 20-40% in his bill to MacroSoft. This markup is Bob's compensation for *risking* that he might not be paid promptly by MacroSoft. Therefore, it is unfair for Bob to withhold your payment on the basis that MacroSoft has not paid him yet. You should never be dependent on Bob's ability to invoice and get paid by MacroSoft.

Speculative Work

The client wants you do work for a proposal, with little or no compensation unless they land the contract. Heard it a million times. If you remember nothing else from this article, get this key point of all economics: risk and return must always be linked. The risk you bear and the payment you receive must always be linked. But that's not what this client has in mind. They want you to share the risk, but if the job comes through, you only get "fully compensated" for your normal rate... no premium for sharing the risk.

When you think of it, it's not that much of a risk for a company to put together a proposal if they get freelancers like you to do all the work for little or nothing. Without a significant risk (expense), there's no telling how "qualified" these potential jobs are.

So here's the lesson: If you are asked to do work which in any way risks compensation ("you'll get paid if we get the job"), then you are entitled to a premium for assuming that risk. For example, if you do work at half of your normal rate, then IF the job comes through, you should be compensated at double your normal rate. And that's only if you expect a 50-50 chance of getting the work. The higher the risk, the higher the premium.

Budget Shifting

Your favorite client says: "We're really stretched on our budget for this program, but we have lots of other programs we'll be doing in the next few months. If you'll give us a break on the price here, you can make it up on the other jobs which have better budgets." I'll even give the client the benefit of the doubt here. They probably think this might have half a chance of happening. The problem is that the other projects -- if they develop -- never have any more room for profitability than this job.

Again, your client is asking you to assume the risk that you will be compensated in the future for work now. But beware, clients are very good at selling this particular risk. Trust Uncle Pat on this one: every job must pay for itself. No shifting of compensation from job to job. You have no guarantee that the "next" project will ever happen. If your client is "certain" that there is another job coming from which you can be paid, let them put it in the contract.

Keep in mind that there are many issues to negotiate on most jobs other than price. Payment terms is a key point. If they are limited on funds, then you have room to push for better payment terms. For example, 50% up front (cash in hand... not just invoiced) and 50% on the day of delivery (again, cash in hand.) If you reduce your price, you should expect to reduce your risk of getting paid by getting paid up front.

Nobody Respects a Doormat

You may need the work, but you never need the work bad enough to get taken advantage of. If you allow it, you will be known for it and will continually be taken advantage of. Remember, clients will push you as far as you will allow.

I think you'll discover that most clients will respect the fact that you won't be taken advantage of. The good clients understand. The other clients... you don't want them. Be flexible, but not more flexible than your clients are willing to be. Take risks when they are smart risks, but understand that all risk should be compensated if you get the job -- in addition to your normal rate.

Any other suggestions on this important topic? I'd especially like to hear from people who hire freelancers. Please send your comments or questions to pat / at / director-online.com

Patrick McClellan is Director Online's co-founder. Pat is Vice President, Managing Director for Jack Morton Worldwide, a global experiential marketing company. He is responsible for the San Francisco office, which helps major technology clients to develop marketing communications programs to reach enterprise and consumer audiences.