The Problem with Prepayment
As you probably know, I believe very strongly in getting paid a certain percentage of a project’s price before getting started. This is not something that you have to do with established clients, but for first time jobs, you definitely want to look into this. But just like anything else concerning payment, there are some potential problems with receiving prepayment. Personally, I have encountered two issues in the past on several occasions.
1. What is your plan if you receive prepayment, but the client does not like what you turn in? You have two options if this is the case. 1. You can work with the client until they accept your work. 2. You can refund the money, and part ways. The problem with number two is that you may have already spent or transferred the money that the client prepaid. To avoid this issue, make sure that you always have enough money in your PayPal account to cover refunds. Although refunds are few and far between, you still want to be prepared if this situation comes up.
2. Many clients confuse prepayment for full payment. You need to be 100 percent clear in the wording that you use. If you are asking for prepayment for the entire cost of the project, that is fine. But if you are only asking for 50 percent, you need to make sure that the client knows this. There is nothing worse than sending an invoice for the remainder of the payment, just to have the client say that they already sent the whole thing. To avoid this, make sure you and the client are on the same page.
Remember, this is not to say that you should avoid prepayment. But it does mean that you should be careful about what you are doing. Yes, prepayment is a good thing, but only if you do it right.
February 20th, 2008 at 5:11 am
It’s funny you mentioned this, I only got my first prepayment last week. So far I was operating on a trust basis, even with new clients. I know that is taking some risks and have already quoted the latest jobs with half-half.
It does feel weired but ads some sort of safety.
February 20th, 2008 at 10:21 am
Ah, the prepayment system … it brings back memories of blind rage and darn near desperate frustrations!
Back in the day when I was a freelance software developer, I’d often ask for 50% up front for larger projects (things that take more than 1 week). I’d always make it very clear that this was just a partial payment, and it was even written on the invoice/receipt that they signed upon paying. That didn’t stop five clients in the space of 18 months try to rip me off and claim that they paid the full amount, though.
I wouldn’t complain so much if it was just a simple miscommunication, but these clients were clearly lying to get out of full payment and, more often than not, would resort to the “language card” when I threatened court action. Luckily, the Canadian legal system doesn’t care what languages you’re proficient at if you signed a contract
That said, be sure to protect yourself and keep records of all transactions. Signatures on receipts of partial payment can go a long way to protect your interests should a situation turn sour.
February 22nd, 2008 at 1:31 pm
When I’m working with established businesses, it’s typically not a problem. They understand the concept of prepayment and usually there’s a written work order.
For individuals, unless I’m getting work from freelance sites, I normally require a 100% payment before I start on the project. Once I set the expectations - it has been working like a charm.
Nadin