50% Down for new work.

...except when your client doesn't pay that way

[mcjohnson]

How do you handle situations where you're dealing with either a government entity, or a huge corporation, who basically says "we pay on a P.O...30 day net"? So while you normally expect 50% down from your new business, with certain clients, usually the larger ones, you're playing by their rules?

At what point does the tide shift to the extent that YOU have the power to determine the terms, not them? EVER? Because I have had a spate of clients in '08 that are 30 day net, 45 day net, or whatever, and it's been a frustrating year of naming the terms in the proposal (50%, 25%, 25%) and then having the client say "We'd liek to move ahead, but we can't pay up front"

It's nice to have work, but I think I have wound up worse off because it feels like I am working hour after hour for money that is 60 days away.

Thoughts?

[LifeinAsia]

At what point does the tide shift to the extent that YOU have the power to determine the terms, not them?

When you get big enough to be able to say no to the work. Just like in any negotiation, you are accepting their terms because you need them more than they need you.

In a few cases, like government work, they may never be able to bend the rules no matter how much they want to work with you. So it's just a matter of deciding if you want that work or not.

[Zipperhead]

Even when I got started in 2001, we had a policy of asking for payment up front. I know it sounds crazy for a start up, but it just worked. Somehow.

Once or twice it's been an issue. Once with a large university on the West Coast, but we knew they would pay. If clients have insist on 30 days net, we will split the difference and go for 15 days. But it still means that they pay before we deliver, we just send the invoice out 15 days early. Some of these were Fortune 500s.

In our years of business we have never not been paid for a project or relationship. That's really nice.

Sometimes it's worth pushing the client a bit. Often just pushing out the milestones a bit to make space for the invoicing will work. If they really want to work with you, nothing is written in stone.

[Jack_Hughes]

The tide turns in your favour when you can say no.

[mcjohnson]

yeah...thanks for the insight. I hope I am getting close to that day..end of the year is always slow for me. So it's hard to say no when you need to pay expenses, and hence, you end up acquiescing to their terms.

Thanks

[Jack_Hughes]

Personally I wouldn't be too concerned extending credit to government agencies and large enterprises so long as I know exactly who to ask for in the payment department. You should be able to sort that out before signing on the dotted line. You can of course inflate your bill in order to pay for the cash flow funding though. Only fair that they pay a few percent extra when they are using you to fund their business.

[Jack_Hughes]

You might try a different pricing structure for part pre-payment customers and pay at the end customers to reflect the extra risk involved with bad debts. That way they have an incentive to pay part up front.

[edited by: Jack_Hughes at 4:00 pm (utc) on Nov. 14, 2008]

[HugeNerd]

You might try a different pricing structure for part pre-payment customers and pay at the end customers to reflect the extra risk involved with bad debts. That way they have an incentive to pay part up front.

One company we work with has gone to such a pricing structure. We know and trust them and have worked with them on many aspects of our website. They now give us 10% off invoice if we pay up front, 5% if we pay 50% up front, and then normal terms if we so desire. It's a nice incentive -- when we know we are going to have the work done, when we must have the work done, why not get 10% off? We'd have to pay in the end, so if we cut the check at the start, they drop 10% and then there is no more hassle or negotiation. They stick to the original estimate as a result and everyone goes home a winner.

[vincevincevince]

If you don't get your 50% down-payment, you need to get a well written and signed contract showing the conditions of your entitlement to the payment at a future date.

Government agencies and the like have budgets to balance like everyone else and if they decide the pull the plug, you will need to fight to get what you are owed for the work done to that point.

The previous point from Jack_Hughes about charging them for the cost of cashflow is a good one. You can even factor the payment to a third party who will pay you now and then chase the company for payment. Just add the costs of the company to your bill.

[LifeinAsia]

Also note that government agencies and some large companies have very strict budgets. For budget reasons, they may either need to use up their money by the end of their fiscal year (or quarter) or they lose it, or they may have blown the current budget and won't have any funding until the next fiscal cycle, either of which may affect their timing for payments.

So far, we've never had a problem getting paid (eventually) by our government clients. In a few cases, they retroactively added some additional hoops for us to jump through to get paid. Sometimes we jumped through the hoops, sometimes we told them to remove the hoops if they wanted the finished product.

One good things (although it can also be a double-edged sword) is that the bureaucracy created in government and large companies means that there is almost always a higher-up person to whom you can take any complaints about billing.