Contract Hacks: Getting Paid When Things Go Kerflooey
One of the great virtues of having a contract is that it tells you what to do when things don’t work out the way you hoped they would.
Tucked away at the end of the contract are all sorts of helpful instructions on how much interest late payments will incur, where you can sue each other, and who is responsible for what.
One of those things should be what happens if the client changes its mind mid-project. You never want to leave yourself in a situation where you’ve done a whole mess of work but you can’t get paid for it.
Here’s how to hack your contracts to make sure you get paid even when things don’t work out.
Deposits are a Freelancer’s Best Friend
One of the easiest ways to avoid being left holding the (empty) bag is to have your client pay a deposit for the work up front.
By Stan Dalone & Miran Rijavec via Flickr.com
The benefit of this hack is that it’s dead easy. In the payment terms you say that xx% of the total fee is due at the time of signing the contract as a non-refundable deposit.
The downside is that it can be difficult to find a deposit amount that will adequately compensate you if they decide to drop the project and is an amount the client is willing to pay up front. In these situations everyone is trying to limit their risk and doing so means that your interests (getting as much as you can if things go poorly) and theirs (not losing very much if they decide this ins’t going to work out) are in opposition.
But, just like you can eventually find the center of gravity of an object by balancing it on your fingers and slowly moving them toward one another, with enough experimentation, you can find the sweet spot for your upfront deposit.
If you decide to go the deposit route, there are a couple of things to keep in mind:
Don’t do work until you’ve gotten the cash money. After singing a contract everyone can be buddy-buddy happy and you might feel peer pressure (or make-the-client-happy pressure) to do “a little” work before the deposit check arrives. Don’t.
That deposit check is your boundary and if you nudge it around from the get-go it will impact every other boundary you try to set up with that client. They’ll know you are willing to bend the rules and they’ll try to get you to do it for their benefit.
“But, Katie,” you whine insist, “I need to do work so I’m ready to go once the deposit check comes!”
If you do any work, make it admin work that the client can’t see and won’t know about until the check is cashed. And make sure you are 1000% OK doing that work for free. (If your admin hoops are so cumbersome you don’t feel like you can wait until you’ve gotten paid to get things started, consider what you might be able to automate or “systemitize” in your work.)
By Theen Moy via Flickr.com
Milestones Are a Girl’s Best Friend. A milestone is an agreed upon important point during the work process. It could be tied to the amount of work done, or getting the client’s approval for moving to the next stage, or it could be just tied to time. Milestones are helpful because they can encourage communication and, when used well, are good at uncovering misunderstandings before they get out of hand. They can also be super good for getting paid.
For instance, let’s say I get a deposit of 40% when the contract is signed and my milestones for this comics project are (1)thumbnailed art, (2)inked line art and (3) final colored art. I turn the work in according to the schedule and the client gets to approve the work with one round of revisions at each stage. I can write the contract so that once the revisions on each milestone are accepted I get paid another 20% of the job’s fee.
Be careful how you word this language! You don’t want them goofing around withholding an approval to avoid paying you. Language like “Upon acceptance, or 30 days from the date the work is submitted, whichever happens first, Client will pay Freelancer…” can help avoid that kind of problem.
Liquidated Damages — Sexier Than They Sound
Another hack for avoiding being hosed is something we lawyer types call liquidated damages.
The money you get in these situations is perfectly solid, spendable cash. The “liquid” moniker comes from the fact that the damages are agreed upon and known before the harm happens. If A + B + C happens, then Z damages are paid.
A Kill Fee is a common form of liquidated damages in freelancing. If the client agrees to the project and signs the contract but later cancels because she changes her mind, then the client must pay a Kill Fee of $XXXX.
By Guian Bolisay via Flickr.com
If you decide to use a form of liquidated damages in your contracts I recommend that you (1) read a lot of liquidated damages sections (Docracy can help) and (2) talk to an attorney.
The reason contracts have liquidated damages is that penalties, strictly speaking, are not enforceable in contracts. Why? A penalty isn’t correcting the situation between the parties (putting them both back to where they would have been if the harm didn’t happen), it’s just punishing one side for its behavior.
In contrast, liquidated damages say, “If this behavior happens we all know it’s going to cause harm and that harm is going to be difficult to figure out exactly. Instead of spinning our wheels and fighting over it, we agree that the damages owed in that situation are X.”
An attorney can help you make sure the liquidated damages section you use stays on the enforceable side of the law.
By Amarand Agasi via Flickr.com
These are two of my favorite hacks for making sure freelancers get paid. What are yours?
Categories: Contract Hacks
Another great post, Katie.
What about revisions? Some revising is normal, and incorporated into my estimates (two rounds). But sometimes a client likes to continue fiddling and tweaking, instead of letting well enough alone. (Let’s assume that I’m not giving them a half-baked pile of mush.)
What language should I include that defines ‘reasonable’ revisions within scope, and what happens if the client wants more revisions than are included in the project estimate? Without this language, I fear that I’m exposed to a scenario where a client continues asking for changes without paying for my time.
Ideally I would be charging based on value, not time, and those extra changes would just be part of that value.
Your wisdom?
Many thanks!
The best way to handle revisions is by establishing clear boundaries and letting the client know what they can expect if they nudge those boundaries. You don’t have to be particularly fancy with your language; I find that just telling it like it is works best in these situations.
Be clear in your proposal (and contracts) that two rounds of revisions are included in the cost of the project. If you want to be really clear, tell them when those revisions will happen, for example, the first round will occur after phase II and the final round prior to finalization of the project.
Don’t assume they know what a “round of revisions” is, either: tell them. “A round of revisions is a set of requested changes Client provides Contractor in writing after the parties meet, in person or on the phone, to discuss the status of the project.”
Finally, tell them how much a round of revisions will cost if they go beyond the included two. You can charge for these revisions based on how long they take you (per hour) or per revision (a set fee). Either way clearly state what each additional round of revisions will cost and if there is a cap to how many they can request.