Start Every Project With a Deposit—Just Do It!
Many creatives collect deposits on their projects. It’s not a big deal. They simply include the deposit in their terms and conditions.
But for others, collecting a deposit seems impossible. They don’t know how they could possibly ask for money before they complete the job.
They’re embarrassed to bring it up. They’d rather not talk about money, and what if the client isn’t happy with the work?
Collecting deposits comes down to your attitude and comfort around money.
Why Should You Collect a Deposit?
Collecting a deposit can solve many problems for your freelance or agency business.
Let’s review them.
Deposits Smooth Out Your Cash Flow
Let’s say you’re working on a $5,000 project and won’t get paid until it’s done. You might finish it in a week, but then it goes to the client for approval. The client is slow, and they have a few layers of approvals. It comes back for a couple of rounds of revisions.
By the time it’s done and signed off, a month has passed. You send the invoice and get paid in 30 days (if you’re lucky).
So, you’ve worked and waited for two months with nothing in your bank account.
If you looked at a cash flow statement, it would show $0 for this project until the money hits your bank.
One of the financial goals for your business is to have a smooth, dependable cash flow. If you had received a 50% deposit, you’d show $2,500 in month one and the same again in the next month. That’s a much easier way to work and budget.
Also, think about it this way. Assuming your client is an employee, they get paid every two weeks. Their cash flow is very predictable. What about you?
The Biggest Source of Struggle is Cash Flow
I’ve heard of so many freelancers who are busy, and their billing is OK, but they’re broke. Why?
They have $15,000 in receivables and $100 in the bank. The clients pay slowly, and meanwhile, the freelancer worries about making the rent or mortgage. That’s no way to live.
I wrote about managing your cash flow to make your income more predictable here.
Deposits Make a Project Real
Have you ever done a home renovation where you hired a contractor? If so, you paid a deposit to get the job going. It makes sense, right? The contractor has to buy materials for you, pay staff, etc.
But think about how you felt when you paid that deposit. For you, the project became real. You paid money. You’ve decided to go with this contractor and assume that the contractor will start your project, and soon, you’ll have a new kitchen or bathroom.
The contractor has your commitment that you will not change your mind. You feel like you have the contractor’s commitment to get to work on your job—after all, they have your money.
That’s the power of a deposit. It’s not just talk anymore. There is now a higher level of trust between you. You’ve both committed, and this job is officially underway.
Deposits Weed Out Bad Clients
Imagine asking for a $2,500 deposit on a $5,000 project, and the prospect says no, they won’t pay a deposit.
Logically, why wouldn’t they pay a deposit? There are only a few possible reasons.
They don’t trust you. They want to see the finished job before they give you the first dollar. Do you want a client like that? I wouldn’t think so. If you agree to do the project, you’re sure you can complete it. Why would anyone doubt that? (Your portfolio shows similar projects, which should be all the proof anyone needs.)
Or maybe they don’t have the money. You’d rather find that out now than later, right?
Either way, it’s not the kind of client you want. Not wanting to pay a deposit is a sign that there will be money issues down the road. You don’t want to spend time and effort on a $5,000 project and then chase the money forever. No thanks.
In an ideal situation, you’ve both agreed on the scope and timeline of a project, you’ve settled on the final price, and you’ll get the deposit to start work on it.
Some Clients Like Paying Deposits
Just as you aim for smooth cash flow, so do clients. Paying a deposit lets them split the cost over time. I’ll bet you didn’t think about that.
Some clients will welcome the opportunity to pay some now and the rest upon completion.
Professionals Get Deposits
Hire a lawyer, and once you’ve agreed to the terms of the assignment, they’ll tell you how much they need to “get started”.
It’s no big deal, it’s just how they work. They’re not embarrassed about it (if they are, they hide it well).
But, unlike a contractor, where you could justify a deposit because they have to buy materials, a lawyer works much like you. They don’t have any expenses other than running their practice. Same as you.
Once again, it’s helping them with their cash flow, and the deposit makes the job real. You’ve committed to working with the lawyer, and the lawyer has committed to providing the outlined services.
Getting Deposits is One Element in Your Terms and Conditions
As a professional, it’s essential that you have terms and conditions that your client agrees to before starting a project. These terms and conditions should be part of your written estimate.
They include the final cost of the project, how many rounds of revisions, timeline, legal (if necessary), and payment terms.
So, your terms and conditions might say the estimate is $5000, it includes up to two rounds of revisions, the first draft for presentation will be two weeks after project initiation, the copyright belongs to the client after final payment, and payment terms are 50% deposit, remainder paid within 10 days.
It’s worth working out a standard template of your terms and conditions which you can use as a basis for each project. You can alter them on a project basis if necessary.
For example, we had a client ask us to include up to five rounds of revisions, anticipating the many layers of management approval at their company. Fine, we adjusted our estimate accordingly.
Seen as just one item in your terms and conditions, getting a deposit isn’t so daunting. Again, be matter-of-fact about it. It’s just the way you work.
Where Do You Start With Deposits? With New Clients
If you haven’t been collecting deposits, but would like to begin, start with new clients. Include the deposit in your terms and start getting paid to begin the project.
I know some creatives who get deposits on the first job with new clients but then drop it. Why? The client has paid the deposit on that first job. Keep getting it. Remember, your goal is to smooth out your cash flow and get paid as you work.
Once you’re confident getting deposits from new clients, you can go back to your existing clientele and let them know that from now on, you’ll be billing XX% up front. You might be surprised by how easy it is.
On the other hand, if an existing client can’t (or doesn’t want to) pay a deposit, you can let it go and stick with your current arrangement.
You don’t have to have the same terms and conditions for every client. Your company, your rules.
Write an Invoice for Your Deposit
Once the client agrees to pay your deposit, give them an invoice. Their accounting department will likely need it to issue payment. Make sure you have complete information on your invoice. For example, some accounting departments will want a project number or a specific name for the project.
Make sure they don’t hold up payment because of a “problem with your invoice”.
Get Comfortable Talking About Money
If you think you’ll have difficulty approaching clients about deposits, I’ll bet you’re undercharging too. Further, I’d wager you’re uncomfortable talking about money in general, and you shy away from it.
You have to practice doing it until it becomes natural, and it’s just another business discussion. Being uncomfortable talking about money is costing you.
I wrote about how to talk to clients about money here.
Large Projects Should Also Have Progress Payments
At my agencies, we had a few projects that went on for months. An example would be where we handled a 100-page website, including re-writing the pages, coming up with new graphics and photography, and all of the programming right up to launch.
In that case, our payment terms included payments at key deliverables. So, in this case, it might be upon presentation of initial concepts, presentation of final layouts and 50% of the copy, first beta site, etc.
Payment terms will vary according to the project, but make sure you’re getting paid along the way. You don’t want to be the bank financing a six-figure project for months.
Have that discussion early, so it’s not an issue later on.
Freelancers and agency owners, learn more about managing your money in my book, How to Start a Successful Creative Agency. It’s the essential business guide for graphic designers, copywriters, filmmakers, photographers, and programmers.
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