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How do you handle negotiating NET terms for payments on a project?

In my experience, I have seen NET 30 all the way to NET 90. Can you imagine working on a project, submitting an invoice, then waiting an additional 3 months after the project is done to get paid?

In a digital, real-time, world. How do you justify withholding payment for 3 months on digital goods you have already received? The work has been performed, and the goods have been delivered. What's the holdup?

As a freelancer and agency, you can set payment terms. You do not have to accept what the client wants. You will, however, need to be prepared to explain the reasoning and close the deal. I was surprised by how many freelancers didn't realize they could say no to NET 45, 60, etc., and create their own payment schedule optimized to push for successful project delivery.

After having this conversation with many freelancers, it hit me. We need to start having conversations about what you can say no to and how to do it.

This article is going to focus on payment terms, but here is a short list of items you can take ownership of:

  • Payment terms: Create a payment schedule that helps your company perform at its best. This could be 100% up front to kick off the project. Or, 50% down, 50% in 30 days from the project start.
  • Scope of work: A client may send you a contract with a full list of requirements. That's great; use it. Create your scope, pulling from what the client provided, add your requirements, clarifications, a "what's not included" section, deliverables, etc. (This will have its own article.)
  • Contract: Always get legal contracts reviewed by an attorney before signing. If a client sends you a contract for a project that you will own, review it and pull items from it for your own contract. Load it up into your signature management account and ensure you have a fully executed contract. i.e., your signature and theirs.
  • NDA: Review and update to cover a period of time you're comfortable with, check for predatory language, and ensure any legal actions will be held in your home state. Have an attorney confirm that it is a mutual NDA and doesn't give more rights to one side over the other.
  • Deliverables schedule: You can decide when a deliverable will be ready. You can also determine the cadence of client reviews. Remember, you own the project, explain why your choice is meaningful, and guide the client to a great outcome.
  • Disconnect payments from deliverables: As hard as you can, try always to implement this. Forcing a deliverable to get the next draw always pushes for subpar work to check a box to qualify for requesting the next payment. (This will get its own article as well. I have a lot to say about this payment style.)
  • Project price: Stay away from hourly billing. If the project is complex, schedule a discovery project with the deliverables being a technical scope of work, the price, and optionally a design prototype. This project could be 1 day, a week, or longer, depending on the complexity. After this, you will fully understand the project and be able to give a price and deliver amazing results for the client.

Now, back to our NET terms discussion.

Remember, this is a negotiation with your client. You are allowed to say no and make changes, but so is the client. This article aims to inform you of the many things you're allowed (or are common) to say no to and change, even when working with large agencies. Just be prepared to address pushback.

Let's check out some examples.

Freelancer offering staff augmentation. In this style of project work, you are renting out your time and talents as an embedded team member. Many times, the offer will look something like this: n per hour, full-time remote, NET 30. Remember that this is a B2B contract; you're not an employee.

What they expect is that you will work 40 hours a week and submit an invoice to payroll at the end of the week or month, then wait 30 days to receive the payment. That is if their accounting team can actually get the payment out on time. You may end up waiting 38, 45, or more days to receive the payment.

How can you make this better for everyone? First, test the waters and have a conversation about your NET terms before you sign anything. Can off setting when an invoice is submitted help their accounting team process payments on time? i.e., "We need at least NET 15 (or 30) to be able to process on time". Okay, I will submit one invoice at the start of the month, with NET 30 terms, and then I will get paid at the end of the month for the services provided.

Owning part or all of a project. In this case, you should be able to set a total price based on the requirements of the project deliverables. You have much more creative control here. And a lot more responsibility. Are there licenses, fees, new hires, etc., needed for this project? These elements may require you to require a larger down payment to cover the project startup costs.

Once you estimate time, phases, etc., you will have a good idea of when and how much money you will need to keep the project moving. A visual timeline estimate tool will help this part of the process; check out Dev Nova timelines. This is the time to break away from deliverable base payment schedules. This works best when you're confident in yourself and your team.

Here is how I explain this to clients.

I disconnect payments from deliverables and, instead, base them on time. This project is estimated to take 3 months based on the current set of requirements. We require 40% down to start the project, then 30% at 30 days and 60 days. This allows our team to focus on creating the best possible outcome instead of forcing certain features to "be in the project" so that we can get the next payment.

You may wonder, "But if the next payment isn't connected to a deliverable or milestone, how can we be sure you're going to complete the project?"

The answer is simple. By 30 days in, we will have had multiple feedback sessions with you, and if you don't feel comfortable processing the next payment, you shouldn't. That means our communications have failed, and we must address the problem. If you still don't feel comfortable or confident in us after we address the issue, you should fire us. We can include a money-back guarantee if the project is canceled within the first n days*.

* Only include this if you feel comfortable and the client is trustworthy.

To summarize

It is acceptable for a freelancer or agency not to accept the standard NET terms of a client. Even if the client says,

"This is our standard process. All freelancers get paid this way"

You have your own standard process, and you are providing services that the client needs. Use the leverage at your disposal to give yourself confidence when negotiating. Find the balance of give and take and lock in terms that you're comfortable with, and that fit the project's needs.

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