Ask HN: Independent consultants, how do you structure payment contracts?
When you partner with a company or person to do work for them, how do you structure your contract to ensure payment and that both parties are satisfied and protected?
4 comments
First I do the "pre sales" for free, meeting with the customer and their team, get to know what exactly they need, how much time, signing an NDA and studying their current infrastructure if they're interested. I do this for free because it helps me understand if the customer has a good position and if the work makes sense for me.
Then I write the contract, usually separated in phases. Each phase has its own schedule.
For "short" contracts (like one or two months), I send an invoice after the first phase, with about 50% of the value. Then 50% after the work ends.
For longer contracts (6 months+), I divide the total cost between the months. So if a project is 10k for 5 months, I send an 2k invoice each month. Depending on the customer, if they don't pay in at least 5 business days after the invoice is sent, I stop working.
After the contract ends, I usually provide 30 days of email/chat support to answer questions (and not hands-on work).
This is working very fine for me, but sometimes things could go wrong, so having a good lawyer ready is great as others said in this thread.
Good luck!
Then I write the contract, usually separated in phases. Each phase has its own schedule.
For "short" contracts (like one or two months), I send an invoice after the first phase, with about 50% of the value. Then 50% after the work ends.
For longer contracts (6 months+), I divide the total cost between the months. So if a project is 10k for 5 months, I send an 2k invoice each month. Depending on the customer, if they don't pay in at least 5 business days after the invoice is sent, I stop working.
After the contract ends, I usually provide 30 days of email/chat support to answer questions (and not hands-on work).
This is working very fine for me, but sometimes things could go wrong, so having a good lawyer ready is great as others said in this thread.
Good luck!
%25 percent the day you sign. This covers what it cost me to scope the work and bid on the contract.
%50 The day I am done writing code. This code should meet all the spec's you set out in the agreement.
%25 percent after QA/Live. There are always bugs it has to go out, a last minute tweak or two, general deployment support.
You can cancel at any time but pay me out to the next point in the contract. If you sign up, and cancel the next day I get 75 percent. Someone will tell you that's "not fair" or "we wont cancel" ... then they should not have a problem with the terms, if you are serious they aren't at issue.
Have a major scope change. Pay out the contract and let's write a new one. Or we can negotiate an amendment... Either way it's very hard for you to rug pull me.
Get a very good lawyer. Pay them well. It will hurt at the start, but in the end you will be better off for it.
This is all you need to know: https://www.youtube.com/watch?v=jVkLVRt6c1U
%50 The day I am done writing code. This code should meet all the spec's you set out in the agreement.
%25 percent after QA/Live. There are always bugs it has to go out, a last minute tweak or two, general deployment support.
You can cancel at any time but pay me out to the next point in the contract. If you sign up, and cancel the next day I get 75 percent. Someone will tell you that's "not fair" or "we wont cancel" ... then they should not have a problem with the terms, if you are serious they aren't at issue.
Have a major scope change. Pay out the contract and let's write a new one. Or we can negotiate an amendment... Either way it's very hard for you to rug pull me.
Get a very good lawyer. Pay them well. It will hurt at the start, but in the end you will be better off for it.
This is all you need to know: https://www.youtube.com/watch?v=jVkLVRt6c1U
Obviously clear expectations help.
I ask for monthly payments in advance. This only works though because "you need me more than I need you" and I'm happy to walk away (I have other work to do.)
This is framed as "risk" (ie, I don't take any, so I don't need to cost it in.) For any kind of "after the fact" payments I assume the risk you won't make the last payment, so I price that in.(ie I jack the price so I've got what j want before the last payment.)
I won't start work until you've put some loot in my account. If I start working for free I can expect you to keep moving the goal posts. Since I've already "invested" time in this project I'll be happy to make some changes to get us over the line right?
Fundamentally it helps when setting up the partnership, contract, whatever to decide how much risk you want to take on. That comes with experience. But I recommend managing risk carefully. Ideally risk should be balanced. (Getting paid 90 days later, if they feel like it, isn't balanced.)
Sometimes I work with them to overcome procurement hurdles. One place could only pay 50% up front, 50% on completion. I doubled the (fixed) price. I got paid up front, their procurement system was happy. I can choose to give a generous settlement discount at the end, or not, depending on their behaviour during the contract etc.
I ask for monthly payments in advance. This only works though because "you need me more than I need you" and I'm happy to walk away (I have other work to do.)
This is framed as "risk" (ie, I don't take any, so I don't need to cost it in.) For any kind of "after the fact" payments I assume the risk you won't make the last payment, so I price that in.(ie I jack the price so I've got what j want before the last payment.)
I won't start work until you've put some loot in my account. If I start working for free I can expect you to keep moving the goal posts. Since I've already "invested" time in this project I'll be happy to make some changes to get us over the line right?
Fundamentally it helps when setting up the partnership, contract, whatever to decide how much risk you want to take on. That comes with experience. But I recommend managing risk carefully. Ideally risk should be balanced. (Getting paid 90 days later, if they feel like it, isn't balanced.)
Sometimes I work with them to overcome procurement hurdles. One place could only pay 50% up front, 50% on completion. I doubled the (fixed) price. I got paid up front, their procurement system was happy. I can choose to give a generous settlement discount at the end, or not, depending on their behaviour during the contract etc.
Don’t put yourself into a position where your client owes you a lot of money, or you owe them a lot of work.
You have to decide what “a lot” means in context.
I avoid getting into such situations by agreeing to well-defined milestones and deliverables, so the client sees regular progress and I have frequent billable events. Neither party ever gets too obligated to the other, and either party can terminate or change the terms without putting a lot of money or work at risk.
You can also use escrow, possibly useful when dealing with clients you don’t trust, but I would avoid getting involved with clients who give you a bad feeling or have a reputation for no pay/slow pay.
Lawyers and contracts won’t save you from an unethical client (or consultant). Contract disputes generally go to arbitration in the USA (by statute). A lawsuit can consume a lot of time, money, mental energy, and ruin your professional reputation. Better to avoid getting into those situations rather than prepare for legal battles.
You have to decide what “a lot” means in context.
I avoid getting into such situations by agreeing to well-defined milestones and deliverables, so the client sees regular progress and I have frequent billable events. Neither party ever gets too obligated to the other, and either party can terminate or change the terms without putting a lot of money or work at risk.
You can also use escrow, possibly useful when dealing with clients you don’t trust, but I would avoid getting involved with clients who give you a bad feeling or have a reputation for no pay/slow pay.
Lawyers and contracts won’t save you from an unethical client (or consultant). Contract disputes generally go to arbitration in the USA (by statute). A lawsuit can consume a lot of time, money, mental energy, and ruin your professional reputation. Better to avoid getting into those situations rather than prepare for legal battles.