As a freelancer or creative entrepreneur, determining the right payment terms can be crucial for maintaining a healthy cash flow while ensuring your clients feel comfortable and valued. In this blog, we delve into practical strategies for setting payment terms that work for both parties, avoiding common pitfalls, and learning from firsthand experiences in the industry.
Why Standard 50/50 Billing Doesn't Always Work
Many creatives are taught to charge 50% of the project fee upfront and the remaining 50% upon completion. While this seems straightforward, it can often lead to complications. Completion can be a moving target, and tying your final payment to it may leave you unpaid for extended periods. Instead, it’s advisable to base your payment terms on clear, defined phases or milestones within a project.
Flexible Payment Terms: Tools in Your Business Toolbox
Not every project or client is the same, and your payment terms shouldn’t be either. Consider including various billing methods in your business toolbox:
Phase-Based Billing: Break the project into phases and invoice based on the completion of each phase. This keeps payments aligned with the work done and can prevent cash flow issues.
Upfront Payment: For high-risk clients or smaller projects, receiving 100% of the fee upfront may protect you from financial risks. Be clear on the conditions as these vary widely.
Sprint Billing: Larger projects may benefit from a sprint-based billing model where clients are billed at regular intervals, encouraging them to provide timely feedback and keep the project moving forward.
Flexible Methods: Retainers, monthly billing, or even adjusting the terms based on trust and relationship history with the client can also be considered.
Customizing Payment Terms Per Project
As the seller, you dictate the terms. Feel empowered to customize your payment structure to suit each client and project. Determine what you feel comfortable with and what's mutually beneficial:
High Trust, Low Risk: For clients with whom you have an established relationship and trust, you may agree to invoice at the project’s end.
Low Trust, High Risk: For new or risky clients, consider a more conservative approach with upfront payments or closely managed payment phases.
Real-World Lessons: Importance of Defined Terms
The way you define “completion” in your contracts can make a significant difference. Ensure that your terms clearly state when payments are due based on your timeline rather than the client’s approval, which can sometimes be delayed indefinitely.
Stand Your Ground and Be Flexible
Payment terms should be fair to both you and the client. They are a vital part of your business operations, and you should feel no hesitation in standing your ground about them. However, remain flexible and adapt to each project’s unique needs. By managing your payment terms effectively, you set the stage for successful projects and sustainable business growth.
In summary, avoid relying solely on one payment model. Instead, opt to use various strategies as tools that can be switched depending on the project and client. This approach not only protects your business interests but also nurtures a positive client relationship.
About Two Pixels Off
Hosted by Brad Hussey and Michael Janda, Two Pixels Off is a podcast dedicated to helping creative entrepreneurs run successful businesses. The show covers everything from marketing and pricing to project execution and profitability, all aimed at empowering creative professionals.
If you’re interested in actionable advice for headline writing and other content strategies, tune into Two Pixels Off on your favorite podcast platform, or visit TwoPixelsOff.com for more episodes.