Pay when Paid?

[danio1011]

About 10% of our clients stick rigorously to this 'We pay you when we get paid' policy.  We've never NOT been paid because of this, but it always seems a bit sketchy to me.  I understand it with structural engineers, landscape, etc.  Those consultants are in on a group effort to get the thing built.  But if you want a pretty picture of a project that seems like it's on you to pay.

Has anyone else run into this?  Do you make provisions in your contract?  And if so, do you actually enforce with a 'good' client?

Cheers and thanks for any input,
Daniel

[Christa Noel]

i have no experience in a big project like yours but i have some experiences related to your 'problem'.

Has anyone else run into this?
There are few of my clients who like to include "we pay you when we get paid" in their agreement, as a fair thing. I handled mini projects with that kind of agreement for many times few years ago and not even one went smooth as it should.

Do you make provisions in your contract?
Yes, as always but not always in a real agreement form. My experience gave me these points:
- What if they have a bad client and they will never get paid? will i still have a chance to get paid?
- "we pay you 30% first and square up when we get paid" is better than "we pay you when we get paid"
- Dont forget the deadline of payment. No clients of mine forgot their responsibility, but 1 of them square up the payment for so looong time because of no deadline and related to point 1.

do you actually enforce with a 'good' client?
i've never done enforcement with my 'good' clients simply because they're a real 'good' client who always be aware of their responsibility when i ask a payment related question, even though sometime they can immediately move their life into the silence as long as forever until i start a conversation hahaa :D

But the fact is only good client who tend to use "we pay you when we get paid" in their agreement. Anyway this is a part of always try to increase the chance to get their any other projects.

[Ondra]

Honestly, I love the fact, that in our business (selling software), we do not have to deal with this. We were approached multiple times by people wanting "flexible" payment schedule. We rejected all of them - with FairSaaS, there is no excuse not to pay 25€ upfront.

The general rules apply as always - always have written contract. Be mentally prepared to go to a lawyer.

If somebody says "we pay WHEN we get paid", I hear "we pay IF we get paid", which means you are taking additional risk on you, and you should be compensated for that. So, ask for some % extra when this is in place?

good luck ;)

[Juraj]

Architects sometimes act as liaison for the developer and manage the project's marketing strategy. So they hire visualizers on behalf of the developer and pay them too. In that case, it's just reality that they don't have the kind of funds on them to pay you without them received the funds first.
Obviously it is preferable to have the contract and invoicing done directly to developer but sometimes it is what is.

Contract should have no stipulation regarding this, if the payment is Net30/Net45/.. than that is what applies and it is your client's issue to have the money on time.

But yes I understand this, twice in my whole career I was given the apology of payment delay ( two weeks at best ) due to not receiving funds first. I raised my eyebrow internally but since it ended on happy end I let it pass.
I wouldn't let this become regular occurence but thankfully it didn't.
But this was purely an apology and explanation, nothing in contract.

I wouldn't dream about ideal conditions, they'll never apply. I always shake my head when some US residents on cgarchitect boasted over the years how they have "pay on delivery" clause. Good luck enforcing huge corporations to change their payment schedule..

[apjasko]

Such a timely post, I'm experiencing this very issue right now.

We were promised payment and additional services on the project by the Architect following a round of drafts we sent. We found out days later they had sent those images to the developer and they are now being used in marketing material. The developer pressed for final images, and like the Architect, ignored messages regarding payment when we mentioned the agreement and additional services. We put our foot down and said we won't deliver until the invoice is wrapped up as promised to us because we have sunk a few months into the project. There were also other shady things the Architect did along the way that greatly inflated our time invested on the project. We sent them watermarked proofs of the final images and that got the ball rolling in a positive way.

The architect has disappeared from the conversation, ignoring emails and phone calls from us, the developer is furious. We're now directly working with them. But we still haven't been paid. 

[Juraj]

On general note: Always work with retainer/deposit payments. Do 30/70; 40/60; 30/30/40 for longer project or any splits you feel comfortable being able to press onto client. Alternatively, signed off parts, or work finished by month,...

It's absolute staple of almost any other kind of business, it needs to be standard in our industry too. In my experience, I have never met a single client who would have any issue with it (but one client tried to give funny counter-conditions...but that is different talk).
It's same important, if not more, than contract itself ( which quite often, is much more a psychological thing. Good rules makes good friends ).

This way, you'll never worry about loosing the total sum of project and it's much better for studio's cashflow too.

[danio1011]

Thanks all for the helpful feedback.  We actually do have a Net30 clause in our contract, so technically we could enforce it, but then you burn a bridge and these people have paid us before.  I am sure we will get our funds eventually, since the client is an educational institution rather than a dodgy developer, etc.  It becomes a question of cash flow and also principle, which goes to Juraj's point regarding retainers.

Interestingly I actually used to work at this same office as an architect :)  So I've been on the other side, although the PMs I always worked under would pay our consultants regardless of whether we were paid.  It's a large enough office that each PM has a different attitude and advocates for their consultants to varying extents.  The umbrella policy for the whole office, though, is 'we pay you when we get paid.'

I think the lesson we're learning is...get a retainer.

[Njen]

Retainer, retainer, retainer.

Imagine pulling that stunt on anything else:
"Sorry Mr. Restaurant Owner, I can't pay for my meal until I get paid next."
"Sorry Mrs. Car Mechanic, I can't pay you for these repairs until I get paid next."
"Sorry Mr. Accountant, I can't pay you until I get paid next."

It's up to your clients to organise their funds. Either they are lying to you and want to push all of the risk onto you, or they are operating or razor thin margins, and the house of cards could fall over in a light breeze, either way, that client is probably not good to keep.