Why should contractors include milestone payments in contracts?

A contractor in a meeting, sat around a table with clients.

In business cash is king. It is an old saying, some even call it a cliché, yet it is true for organisations of all sizes, but as a freelancer cash is not just king it is the bedrock of your livelihood.

Anyone who has ever freelanced or run their own business, will have either heard the following story, or even been a victim of it at some point; “freelancer engages in work for a client, for which payment has been promised, but payment is never received.”

Unfortunately, many freelancers and self-employed small business owners are vulnerable to this kind of treatment because they do not create any level of tie-in for their clients. Typically, the freelancer wins the work, agrees to be paid once the work is delivered, they deliver the work or at least some stage of the project work, then they never hear from the client again and do not receive any payment for their efforts.


Three or four stage milestone invoicing can help to ensure you get paid for your work

There are many ways to ensure you get paid for your work. The most common is to set up a contract with your clients for every piece of work you do for them.

Most freelance projects are based on two different quoting methods. The first being based on an hourly rate, the second being a set charge for the whole project. Whichever you opt for is up to you, but you must ensure you explain this to your client at the outset, but what is commonly missed is when you will be paid for your work.

Adopting a milestone payments structure can be of benefit to both yourself and your client.

The diagram below shows how it can work for a project that could last 6 months:


Infographic describing milestone invoicing stages

Structuring your invoicing to keep cash-flow buoyant

Structuring the payment terms for a project will ensure you receive payment and ensures your client retains a vested interest in the project’s success. It can also help to ensure your cash-flow remains strong, whilst also benefitting your client by breaking down the project fee into smaller payment amounts.

An example milestone structure for a freelance graphic designer could look like the following:

  1. Insist on a deposit payment up-front. Do not start any work without it.
  2. Agree on the number of following staged payments depending on the size of the project. The first could be on the delivery of the first draft/designs.
  3. A third stage payment, which is often the final payment, would cover delivery of the finished work.
  4. If you are a graphic designer who is also managing the printing for your clients’ project, then you may want to add a 4th stage payment which would cover the cost of the printing.

Note: Invoicing at intervals will likely increase your admin and bookkeeping work, so it is important to ensure you are fully prepared and organised prior to starting this type of invoicing structure.

Ensuring compliance with the agreement

Simply putting a contract agreement together with your clients’ signature on it may not be enough. It is important to ensure your client agreements are watertight.

For a relatively inexpensive fee you can have a set of terms and conditions written for you by a solicitor. Include a copy of these with every contract. it is common practice for terms and conditions to be printed on the reverse of the contract pages.

Using the milestones as your motivator

Sometimes you can become so entrenched in a project that you can succumb to feeling overwhelmed. Big projects, with multiple facets to them, can take a long time to complete and if you are not careful creative block and a lack of motivation can creep in. Use money as your motivator to hit those milestones, but do not scrimp on quality just to get paid early.

Contracts are beneficial to your clients too

If you are unsure about working with contracts, and nervous about even suggesting them to your clients, remember that they are beneficial to your clients too. Staged payments for projects will help your clients’ cash-flow as well as your own.

Each stage will also mean you maintain regular contact with your clients which will reassure them that you are ‘cracking on’ with their project and you are on target to meet whatever deadline you agreed.

In conclusion

Whichever way you structure your contracts and agreements with your clients, all the parties involved can enjoy benefits from following a milestone process and it can go a long way to helping you thrive in your freelance career.

Where can I find help and advice regarding contracts?

The Markel Law Hub is an online resource containing a range of document templates and articles to help you manage your business successfully.

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If feel that you would benefit from access to the Law Hub, you can purchase an annual subscription at www.markellaw.co.uk/lawhub/.


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