Whether intentional or not, it is very easy for clients to waste your time—especially when you are charging a fixed fee and where you aren't being paid until completion of the project. If not managed properly, this type of issue can cause you many cash flow problems, as not only will such client behavior reduce your profitability on their work, it can:
- Reduce your availability to make money from other projects—especially if the client is demanding all of your time exclusively.
- Reduce your productivity, such as through excessive support requirements, hence reducing your ability to complete other work timely and profitably.
- Extend the date that you can invoice for their work though additional requirements generated.
- Extend the date that you can invoice other clients through your decreased productivity.
A typical example of this type of scenario is a design client who is constantly changing their branding requirements for a project. Even if they are offering to pay extra for each change, they are still causing a cash flow problem for the service provider who has agreed to accept payment upon completion of the project by causing more work that extends the invoicing date—for which it is standard for the client to have 30 days beyond this to pay the amount owed.
Such nightmare cash flow problems are not often caused intentionally by clients, but more through communication issues, set procedures and/or a lack of business acumen by either the freelancer or the client.
The solution to avoiding cash flow problems will always lie at the start of the project when negotiations and definitions of terms take place. After this phase, it becomes much more difficult for the service provider to then negotiate outside what is written in any signed agreement, whether it is an increase in the available budget, the specifics of what is to be delivered or the date(s) of payment for the services provided. A good agreement that avoids cash flow issues will:
- Define in detail what is to be delivered and leave no scope for misinterpretation that can lead to extras being defined as part of loosely worded text.
- Ensure that project phases are paid for in advance to avoid the possibility of the client not paying for services provided through bankruptcy or liquidation; clients who are not willing to make a deposit and commit to a payment schedule may be an indication of them having payment problems in general—giving you an opportunity to reject the project before it becomes a problem.
- Define a procedure for changes to the work agreement, ensuring that change requests only come through designated representatives of the client who have the authority to authorize an increase to the available budget. The procedure should insist that all such requests be documented in writing to avoid a scenario where costs for work that deviate from the original agreement are disputed on the basis of no authorized permission given.