General Question

ETpro's avatar

How do you best ensure payment for website design projects?

Asked by ETpro (34605points) August 16th, 2011

I’ve been a Web developer for 15 years. I’ve never had a problem with collections before the economy crashed in 2007. I have had a series of problems since the Great Recession hit, and it seems to slowly be getting worse.

It is common practice in Web development projects to charge a retainer of 50%, so even those clients who fail to pay the final payment after project completion are not complete losses. But more and more are failing to pay, or are being extremely slow to pay. One rather large company has had to work out a payment schedule with me because they apparently do not have the cash on hand to cover the final bill and can’t borrow it. Another truly went bankrupt. Even the owner’s home phone was disconnected by Verizon.

In today’s business environment, what is the best strategy to ensure payment. Should I set up benchmarks and take a smaller percentage as a retainer, but bill at various stages along the way to completion? Should I require an escrow account instead of a retainer? That might seriously crimp sales in a cash starved business climate, because the buyer would have to put up all the funds in advance with the escrow account holder. Should I look into factoring and let the factor house deal with it, or find a finance company who will pay me in full and deal with collections?

I truly don’t have the right temperament to be a collections agency myself, nor do I have the knowledge of how to do that job. I want to stay focused on the ever changing world of Web technology and leave collections issues to those who know how it’s done. But of course, I do want to ensure I get paid a fair wage for the work I do, and I want to do so in the least costly way for the services rendered.

If any Jellies have faced similar problems, or work for businesses that provide a service that might solve this challenge, I’d love to hear your ideas.

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13 Answers

Zaku's avatar

Require that they either meet some tests for reliability, or that they pay in advance.

Look at each client that didn’t pay you, and see what the danger signs might have been that you could have detected before they defaulted. Make that a condition that requires advance payment in future. If some clients don’t like that, explain to them the reasons based on actual past history of not getting paid, and offer them a contract that binds you to actually complete the work as specified, or else you forfeit part of the payment back.

ragingloli's avatar

Only thing I can see is partial or full advance payment.
When they go bankrupt, you will be near the end on the list of people to get their money.

ETpro's avatar

@Zaku Good points. I will work up that list. I’ve already been thinking along those lines.

@ragingloli With the one who went bankrupt, he was importing very expensive specialty coffee and had purchased a warehouse full. He couldn’t get cranking selling coffee at $100 a bag and defaulted. The bank had first dibs and got all that was left.

JLeslie's avatar

Will you design my website? I’ll pay you.

ETpro's avatar

@JLeslie I live and breathe to design Websites. I love doing it.

JLeslie's avatar

@ETpro I am dead serious.

ETpro's avatar

@JLeslie Me too. PM me with what you need.

funkdaddy's avatar

I basically use the same system you do, 50% up front and the rest due at completion. If a project is going to take multiple months, I try to put some milestones in so there’s more frequent payment just so if things drag out I’m not waiting on one big payment.

I can’t think of a way to ensure payment every time or really a business that doesn’t have the risk of a loss. I could be wrong, but I think requiring full payment via escrow or some other more complicated requirements would ultimately cost you business in the long run.

One thing that’s worked for me on smaller projects when I sense there’s an issue is just to be open to alternate payment methods. This can be as easy as accepting credit cards or breaking the remaining payments into bite size monthly payments. It’s not ideal, especially when you need cash to pay the bills, but it works out better than nothing.

You’re going bankrupt? I’m sorry to hear that. Is that a 27” monitor? Maybe we can work something out.

The last thing I’d say, that you might already be doing, is to keep as much of your business local as you can. There’s a certain psychological element to being able to show up someone’s place of business and look them in the eye. You can generally tell right away who’s being straight with you and willing to work something out and who’s just a crook trying to pull one over. It makes it a lot easier to act accordingly.

I hate the billing side of the business, I’m also not built for it. One of the best decisions I’ve made is to just not work with people anymore if it’s hard to get paid. It’s not worth it. (I’m sure you’re on this suggestion already, it just took me a while to learn.)

ETpro's avatar

Thanks, @funkdaddy SOme great suggestions, and it helps to hear that I’m not alone in facing these problems. I think you’re right about the escrow idea. Too complicated and would scare off too many potential clients who know other developers don’t demand the same.

Nullo's avatar

You rig the site to suffer catastrophic failure unless you’re given the other 50%.

ETpro's avatar

@Nullo Ha! I actually could easily do that. But practicality as well as business ethics prevent me taking that step. I’m a Yahoo! Small Business Partner and mostly develop Yahoo! Stores. I have terms of service agreements with Yahoo! I must abide by in my treatment of their customers. The arangement my limit me in some ways, but it means I have virtually nothing to do to market my services. One of the nation’;s largest tech firms does that for me. I get so many inquiries I can’t possibly book them all. So I can ask Yahoo to lean on a store owner who fails to pay, but I dare not pull the site’s plug myself.

Nullo's avatar

@ETpro Less destructively, you could lock up the site and offer an activation code for it in exchange for the rest of the money. This would, of course, be disclosed up front.
Hey, it’s what game software companies do. Lose your activation code and you’re sunk.

ETpro's avatar

@Nullo Good point. I will talk with Yahoo! about what options fit withing our the terms of our agreement.

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