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If you’ve ever had trouble getting paid, give yourself more security with milestone payments.

A milestone payment is simply a certain % of the fee of a project that the client pays over the course of the project rather than paying 100% at the end. One rough example of a milestone payment system would be if a client payed you 30% upfront, 30% after the first draft is submitted, and 40% at project completion.

Here’s how and why they work:

Milestone payments protect freelancers

1. They ensure some payment if project gets dropped. If you’re working on a 4-month project and the client drops off the face of the planet at month 3, milestone payments ensure that you’ve at least got the payment from month 1 and 2.

2. They guarantee that you learn that the client is a non-payer earlier in the project. If your client doesn’t pay at the first milestone a third of the way through a project, try to stop work on the project as soon as possible in order to cut your loses. Sometimes you’ll continue to work, with faith that the client will come through, but you should never deliver a final project if a milestone payment was missed.

3. They help steady your cash flow so you budget more easily. Breaking out your payments smooths out the “feast or famine” cycle most freelancers experience. Makes it a lot easier to pay your rent.

4. They force you to structure the project and break it into smaller pieces, and see if you’re on track for project completion. If you come to the midway milestone point and find that you’ve spent far longer working than you estimated or are nowhere near a halfway point, it’s possible that the client didn’t communicate the original scope of the project clearly. Discuss this scope creep with your client and suggest that you either return to the original project objectives or negotiate a new contract for the remainder of the work.

Milestone payments are good for employers

High-quality clients attract and keep high-quality freelancers and agencies by promising milestone payments.

Any relationship is a risk. As an employer, you don’t want a freelancer to run away with 30% of the project fee and not finish the project. But it’s unreasonable to ask the freelancer to bear 100% of the risk. As long as your payment is tied to deliverables (if possible, in the clients’ hands), the client should feel more comfortable.

How milestone payments work

1: Figure out whether or not milestone payments make sense for your project

A milestone can be associated with either a task or a phase.

  • If you base payments off of task milestones, this means your client would pay when certain sub-projects or drafts are submitted. Good for clearly-defined projects with clear timetable.
  • If you base payments off of phase or time milestones, your client would pay you at a set time period (after a month or after a quarter, etc.). Good for “soft skill” projects without physical deliverables and ongoing projects.

The choice largely depends on the type of project you’re doing.

Milestone payments are most commonly used for projects with set product and time goals that last longer than 2 weeks. Ongoing contracts (where you get paid an hourly fee, not a project fee) can also use milestone payments, though these are often time-based payments and not tied to project goal completions. If you have a short project that lasts less than 2 weeks, it may not make sense to break out payments. However, some freelancers still require a deposit on contract-signing.

2: Put your payment schedule in the proposal

You must include a payment schedule in your project proposal. If you usually require milestone payments, you may also have mentioned this (verbally or in email) during your initial meetings with a client.

Submit a proposal (as usual) to the client with key deliverables broken out in a timeline.

For example:

  • Contract agreement: May 2014
  • First draft due: June 15, 2014
  • Second draft due: August 1, 2014
  • Final due: September 1, 2014

"[Client] will pay a deposit of $500.00 upon contract agreement. After which [Client] will pay 50% of remaining balance ($1,250.00) upon completion of the second draft, and the remaining 50% ($1,250.00) upon completion of project."

3. Negotiate the payment schedule with clients

Chances are that your client is used to a payment schedule and won’t reject the concept of staggered payments. They may ask for fewer payments or try to get a larger percentage of the project payed later. This is reasonable self-interest (they’re protecting themselves against you leaving them) and your negotiation should be the process of you both carrying an appropriate amount of risk.

A way to ensure that milestone payments happen in your favor is to have a strong reputation for reliability -- this is where referrals from previous clients, testimonials, your client list, and social proof come in handy.

But what happens when clients don’t want to pay on a schedule, and want to wait until the work is complete?

  • Explain that this practice is common with independent contractors, and that this ensures that contractors are not abandoned by clients.
  • Share previous experience with clients that has reinforced the need for this provision.
  • Drop the client. If you get weird feelings about them and they don’t want to pay in stages, this might be the type of client who is going to run away with ¾ of the project for free. Listen to your gut.

4. Put the payment schedule in your contract

Try using our Contract Creator and plugging in your schedule on the Payments tab.

Freelancers, do you use milestone payments?