Freelancers’ Questions: What if paying me a lot upfront makes my client uneasy?
Freelancer’s Question: I’m familiar with negotiating payment terms with my long-standing client, such as at key milestones, half in advance or even full payment in advance.
But for a very large design project they want me for they are uneasy about giving me the total £38,000, partly as they have to pay for the design out of their full financial year's budget. I've provided them with my contract which states that in the event of illness or death any over-payments (including work I fail to complete) will be refunded. But they’re still not budging. What’s the solution? I want my client and I to feel secure, comfortable and reassured.
Expert’s Answer: Contractual arrangements are typically built on trust. If you take the standard freelancer-client relationship, both parties usually have to trust that the other will uphold their end of the bargain. The client trusts that the freelancer will deliver agreed services on time and at a suitable level of quality; the freelancer trusts that the client will pay them for doing so.
Things do not always turn out that way, however, and that is when contractual relationships can get messy. Suppliers, after insisting on being paid up front, might produce shoddy work, miss deadlines, or just not deliver at all. It is sadly all too common these days for clients not to pay on time, or not at all.
Escrow is a third-party service that mediates the supplier-client relationship, specifically to avoid the kinds of breakdown in trust outlined above. It takes the form of a financial arrangement -- the client will pay whatever fee is due for a particular service to the third-party provider, who holds it ‘in escrow’. The money is kept until the project is complete and all work is delivered, only being released to the supplier when both parties agree that conditions of the transaction have been met. This is the solution best-suited to you.
You can think of escrow services as a kind of referee or umpire for business transactions, making sure both parties stick to the rules.
For your background, escrow is most commonly used in high value transactions. In property purchases, for example, escrow is used to signal a firm commitment to buy, a bit like putting a deposit down, but still gives the buyer the chance to complete surveys and other background checks into valuation and condition.
In contracting, freelancing and independent consulting, escrow is a useful mechanism for longer term projects where there is perhaps a long list of deliverables to be met, providing reassurance to both parties. For the worker, the fact that the client puts the money up front into escrow mitigates against the risk of doing weeks’ or months’ of work then not being paid! For the client, they know that final payment is conditional on all the agreed terms being met.
Escrow can also be effectively used where there is any doubt between buyer and seller. As a freelancer, if you suspect that a client may be experiencing financial difficulties and worry about getting paid on completion, escrow is a slightly softer stance than asking for payment up front. Likewise, if a client is concerned a supplier might not be able to meet the terms of a contract, they can suggest putting money in escrow, confirming their willingness to pay but making it conditional on satisfactory delivery.
The expert was Adam Home of Safe Collections Ltd, a specialist in debt recovery for unpaid freelancers and out-of-pocket sole traders.
19th March 2019