The importance of including milestone payments in your freelance contracts

For businesses of all sizes, cash is king. For freelance businesses, where the number of projects you have often peaks and troughs, this is especially true. It only takes one difficult client off-putting payment to leave you struggling to cover your bills. Sadly, late payments and unpaid invoices are commonly experienced by self-employed professionals.

In this article, Markel Direct will explain why including milestones payments in your freelance contracts could be a great solution and how to implement them.

Freelancer working on a project

For many freelancers, once they have won the work, they agree with the client to be paid once the work is delivered. This can result in situations where after several weeks of hard work to deliver the project, or at least some stages, the freelancer does not receive any payment for their efforts.

While you can never be completely sure of how reliable a client will be, there are ways to reduce the chances of late and unreceived payments. Through milestone payments, you can guarantee more tie-in from your clients to help ensure you get paid for your work.

Create a contract

Before considering a milestone payment method, arguably the most important factor with every single project you undertake is to have a contract in place that is signed by both you and your client.

In the contract, you can confirm quoting methods – for example whether you’re being paid hourly or whether you’re charging a set amount for the whole project, your rates and when you will be paid.

Providing that you’ve included all the necessary clauses in your contract, if a client doesn’t pay you on time, you can take legal action against them.

For more tips on drafting robust contracts, read our article five common contractual mistakes and how to avoid them here.

Use a three or four stage milestone invoicing system

Implementing a milestone payments structure can be of benefit to both you and your client.

Structuring the payment terms for a project can ensure you receive payment and help your client to keep a vested interest in the project’s success. It can also help keep your cash flow strong and benefit your client by breaking down the fee into smaller manageable payments.

Below is an example of how you could structure the milestone payments:

  • Stage 1 – Deposit milestone including initial project and/ or contract agreements.
  • Stage 2 – Presentation milestone including presentation of initial concepts, designs or plans.
  • Stage 3 – Delivery milestone - for example if you’re a web designer this could be the final launch of a website.
  • Stage 4 – Additional milestone – for example if you’re a graphic designer, this extra milestone could be for printed goods.

An example milestone structure for a freelance graphic designer could include the following steps:

  1. Insist on a deposit payment up-front and do not begin 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, and often the final payment, would cover delivery of the finished work.
  4. If you are also managing the printing for your clients’ project, you may want to add a fourth stage payment which would cover the cost of the printing.

Use the milestones as your motivator

When working on projects, especially big projects, they can take a long time to complete and leave you feeling overwhelmed. If you are not careful, creative block and a lack of motivation can also creep in. With milestone payments, you can use money as your motivator to get stages of the project completed.

Contracts are beneficial to your clients too

If you are hesitant about working with contracts, and nervous about suggesting them to your clients, remember that they are beneficial to your clients too. Staged payments will help both yours and your clients’ cash-flow.

At each stage you’ll be able to maintain regular contact too with your clients which will reassure them on the progress of the project and help you remain on target to meet the deadline.

As an IPSE member, you can enjoy a 10% discount* on professional indemnity insurance from Markel Direct. Get a quote here.

*IPSE 10% member discount terms and conditions

The discount will be applied to the net policy premium before insurance premium tax is applied. All quotations provided will be subject to meeting underwriting and claims criteria acceptance. All cover will be subject to full policy terms and conditions which are available upon request.

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IPSE have partnered with Markel Direct, a specialist insurer of contractors, freelancers, self-employed professionals and micro-businesses to offer a 10% discount* on contractor insurance to IPSE members.

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