Do You Know Why It’s Important To Collect A Deposit For Design Work?

Over the last week an interesting conversation developed on my small business forum on the subject of collecting a deposit before beginning service based work like design. Standard practice is for web designers to collect a deposit for a project prior to starting work. There are some reasons why as well as a few issues associated with the practice.

The forum thread got me thinking more about something I’d considered a tried and true practice. I thought it would be interesting to revisit the idea of collecting deposits, why it’s standard practice for many, and whether or not there are other alternatives.

A pile of money

My Experience

When I first started a freelance web design business. I didn’t ask for deposits. It made me feel uncomfortable to ask a stranger for money before having done any work for that person. I also wanted to run my business with more trust, more me proving my value before asking for money.

After talking to a client on the phone or exchanging emails I wanted to believe everything would work out fine. I wanted to believe the hard part was getting the client to contact you in the first place and after that the rest would follow easily.

Boy, was I naive.

Unfortunately early on I was ripped off a couple of times by people who never had any intention of paying. I always held on to project files until payment was made so they didn’t get anything from me, but I did put in considerable time developing a site without ever getting paid.

These experiences were few and far between, but they did occur and one or two is more than enough to make you want to protect yourself.

Another experience over the years has been with clients who continue to expand the project during the development lifecycle. On several occasions where I didn’t collect a deposit the client would continue to add to the scope of the project just as I was about to finish and be able to collect. Without asking for money the project would just continue further locking me into having to finish the new requests because of how much I’d invested already in the project.

Euros spread out

Eventually I decided upon the rule that prior to beginning work I would ask for a deposit. I was nervous the first time I asked, though it’s never been an issue or cost me a job. It’s not the first thing I bring up with people. I usually wait till a time when I feel confident the client will hire me. Never has someone backed out because of my asking.

As a rule I now ask client’s for a deposit. With some long time clients I won’t and with very small jobs where the final price is going to be small enough where I can afford to lose the time, I may not ask for one either. I do know some service based providers who ask for payment in full prior to starting a small job.

One other advantage to asking for deposits is they help smooth cash flow. Many freelance designers will find themselves busy one month and not so busy the next. You’ve probably experienced a few times where you were waiting on a big check while looking at the all the bills you needed to pay yesterday.

Asking for a deposit breaks up the one large check into 2 or 3 smaller ones and makes it more likely there’s some money in the account when you’re paying the bills and for those times you want to invest to grow your business.

Property of the National Trust sign

The Issue of Trust and Minimizing Risk

There’s a question of trust in all business transactions and relationships. When you’re first starting to work with a new client neither of you know each other. You don’t know if they’re going to pay. They don’t know if you’re going to do the work. At some point you do need to trust each other if you’re going to work together

Without a deposit you as designer take on 100% of the financial risk in the project. While most client’s are good and honest people, it’s possible you can finish a site or application, hand off all the files to the client, and never receive a dime. Or the client could see your finished work decide it’s not what they wanted and move on. Either way you put in a lot of work for nothing.

On the other hand if a client gives you a deposit then they’ve taken on the financial risk for an amount equal to that deposit. They don’t know at that point if you’ll deliver anything. Sadly some designers never do. There are certainly stories of clients paying without ever getting anything in return.

The major difference with the deposit is no one is taking 100% financial risk for the project. In the beginning the client risks 50% (assuming a 50% deposit) of the price of the job as a show of good faith.. After you as designer have finished half the job you’re risking more and more until the project is finished where you’re now at risk for 50% of the project price.

Graphic showing the process of building trust between service provider and client

Some designers will use a payment schedule like a third up front, a third after the client has signed off on the design comps, and a third on completion. In this way no one is ever at risk for more than a third of the the total cost of the project.

Ultimately someone will be at risk during project development and you and the client need to trust each other to work together. Ideally you’ve gotten to know enough about each other to have developed some level of trust and some level of relationship. You both ask questions of each other and trust in small ways until you feel comfortable working together.

Asking for a deposit or payment schedule minimizes the absolute risk you take on with any new job.

Front grill of a classic car

Some Service Based Business Don’t Require Deposits

In the forum thread I pointed to at the start of this post, it was mentioned that a number of service based business exist where payment is 100% after the work is finished. Not everyone asks for a deposit. These might include:

  • Plumbers
  • Electricans
  • Dentists
  • Auto Mechanics
  • Dry Cleaning

Those are just a few I pulled from the thread and we can easily add to the list. Clearly the standard with some service based businesses is not to collect a deposit.

Plumbers and electricians will sometimes charge for the service call whether you accept the work or not. In some ways this is similar to a deposit in that it minimizes their risk in coming out to your home. It also serves as incentive for you to hire them. Not all will do this so I don’t know if it’s an industry wide standard.

Why do some industries require a deposit where others don’t? What can you do in order to collect on an unpaid invoice?

Luzerne County Courthouse

Your Recourses for Getting Paid

I think a big part to the questions above is the recourse the services provider has. Take an auto mechanic. If you don’t pay they keep your car. They did take a deposit and the deposit is your vehicle. You’re going to pay. The same is true of for the dry cleaner. They have your clothes. You want them back and so you’ll pay their bill.

No monetary deposit was necessary in either case because your physical property stands in lieu of a financial deposit.

Think about plumbers and electricians. They aren’t asking for a deposit and they don’t hold your property. They do have a physical presence. They could for example not leave until you pay them. They also know exactly where you live so they can continue to come back asking for payment.

With the dentist you’re going to need his or her services again. You could always switch dentists, but how long do you think it would be before word got around with the other dentists in your area if you never paid your bill?

All of these business not collecting a deposit have other recourses for getting paid and minimizing their financial risk. Most online service based businesses, designer’s included, don’t have these recourses. We can hold onto the files we’ve worked on or created, but that’s pretty much it. If a client refuses payment there’s only so much we can do to collect. Most of us would take the loss and eventually move on to the next client.

Corporations are people too

The Type of Client Makes a Difference

Another idea that arose in the thread was that you wouldn’t necessarily ask a large corporation for a deposit. The decision to ask for deposit does have something to do with the type of client. That is true, but there are reasons for that.

  1. There’s more to gain with a bigger client. Your corporate client likely has a bigger project, with a greater price, and a greater potential for more of the same. With greater reward comes greater risk. That is to say we’re usually willing to take a bigger chance when the potential reward is that much greater.
  2. Recourses do exist with the bigger client. Where you might not require a signed contract for a $500 job, you more likely would for a $10,000 job. Even if you don’t the corporate client will almost always insist on one. That contract comes with legal protection as does the price of the job. It’s not usually worth it to take a $500 client to court. It would be worth it to take the $10,000 client to court.
  3. There’s a different kind of trust involved with the larger client. True you don’t really know the client, but you’ll have more trust for getting paid from IBM than you will from John Smith (Apologies to all the decent and honest John Smith’s of the world). You’re less likely to think IBM will welch on the bill. They might not pay as quickly as you like, but you feel confident they will pay your invoice.

Board room meeting

Even with all of the above you still might collect something prior to completing work. A project from a large client might take months, even years to complete, and few expect a small business or freelancer to not collect anything for that length of time. It’s entirely likely the corporate client would set up a payment schedule with you.

Another type of client who you might not seek a deposit from is a repeat client. You’ve gotten to know each other and have developed a trusting relationship with them. Some of my clients have been clients for years and we’ve reached a level of trust where I don’t ask them for a deposit and they don’t ask me how much a job will cost.

Either of us could get screwed, but we’re comfortable enough with each other to know this isn’t going to happen and both of us will do what we can to make sure the other is happy in the case of disagreement. Treating existing clients with a greater level of trust is one way to grow your business and get them to recommend your services.

Signature on a contract

Alternatives to Deposits

From reading above you can probably tell I think asking for a deposit is important to your success as a freelance designer. Are there alternatives? Are there other ways we could minimize the financial risk when taking on a project?

The idea of looking for alternatives is one that came up in the forum thread, in part, as a way to help differentiate your business. If everyone requires a deposit and you don’t then clients might be more willing to work with you as there’s no risk to them to get started.

Contracts are one way both designer and client gains some protection. Legal protection is a great thing to have, but again you probably need to go to court to get the benefit of that protection. Is it worth going to court to recover $200? $500? $1,000? At some point the money involved is worth time in court. Where that is may not be so clear. Contracts can be great, but unless you can realistically enforce them they aren’t worth the paper they’re printed on.

You also have to consider the issue of working with people in other countries. Which country’s laws apply? Where would the case be tried? Is it possible to get both parties physically present in court? These questions shouldn’t keep you from getting a signed contract. They’re simply to point out that a contract isn’t necessary a perfect way to recover a non-paid fee.

Signature on a contract

One idea that came up in the thread was to use an escrow service. An interesting idea though one I don’t think reasonable for small jobs. The escrow service will naturally want to be paid. Which side ultimately pays the fee. client or designer? For a small job it really doesn’t make sense to pay a third party to hold the money.

A similar idea would be to hire an arbiter to settle disputes. Again this probably isn’t a realistic idea with a small job due to the cost involved.

You might think holding onto login information for various aspects of the client’s site would be enough to give you some assurances of being paid. The thought has occurred to me once or twice to simply return a client’s site to the exact state prior to my working on it when they were avoiding paying my invoice. I often make a backup of files before working on them so it would be easy enough to download the modified file and replace it with the original.

This isn’t an ethical solution in my point of view though, and in the end still doesn’t get you paid. It might keep the client from getting your work for free, but it’s not something I would endorse. It breaks trust and ultimately could impact your brand in a negative way.

You can also try anti-marketing where you spend time promoting through various channels How the client in question doesn’t pay bills. Again not the most ethical solution to the problem, but one that probably feels good.

That’s about all I can come up with for alternatives and none works as well as asking for a deposit or setting up a payment schedule. I’m, always open to new ideas and if you have any I’d be happy to hear them. For now though, I’ll stick with collecting a deposit and occasionally taking a chance with some clients.

Chinese money

Summary

Collecting a deposit for web design work has become the standard way of doing business for a reason. Sadly it’s too easy for bill to go unpaid when you never physically meet a client and have little to no recourses for collecting your fee. In an ideal world there would be no need to get paid something upfront, but the world we live in is far from idea.

Most clients are good and honest people with every intention of paying your bill. However all it takes is one or two not so good and not so honest people to rip you off before you have to pull some trust back from everyone.

A deposit lessens the absolute risk either party takes. No one is then risking 100% of the financial cost of the project. It takes some of your risk and places it on the client, but overall it’s fair to both parties. Don’t be afraid to ask for a deposit.

Do you ask for deposits before starting a project? If so are there times you won’t ask for one? Do you only consider them when the project price will go over a certain amount? Any ideas for ways to protect yourself without asking for a deposit?

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36 comments

  1. I work with Perceived Value Pricing, more familiarly but less correctly known as Pay As You Like or (a bit better) Pay What It’s Worth.

    In any case, since I won’t make a quote, but since the client often has no clue I sometimes do provide a maximum estimate.

    Hang in there ;)

    I use a quotation system too. If the client scores me 10 out of 10, he pays the max estimate. 9/10 means he pays less. Or, since payment is free, that’s what I advise.

    Now, deposits. Since I never know what I’ll get paid exactly, I ask for a deposit equal to 1/10th of a theoretical max estimate as based on the initial scope.

    Haha, long story, sounds complex but in practice isn’t. And it gives, to me, a validation of asking for a deposit — which of course is what I wanted to say and what it’s about here in this — excellent — post :D

    • That’s an interesting way to price Nils. I had to look the idea up to know more about it, but it’s definitely interesting. It does sound a little complex, though I trust you when you say it’s not as hard as it sounds. When you think about it, generating an estimate can be complex all on its own.

      Sometimes it’s hard to guestimate a price and I’ll offer client’s two prices. One being what I expect the project to cost along with the caveat that it might be more depending on a couple of things. The other price I offer is a max in case those depending things drive the cost up.

      Ideally I want to come in below the max, but I know it gives me some flexibility with the final bill.

  2. Thanks for the really good article. I do have to disagree with you about the familiar client point. As a freelance designer, it’s important to keep a steady and consistent stream of income coming in. The only way to accomplish this is to have steady and consistent billing systems. The way I see it, by making an exception for a client on paying you based on a personal relationship, you are setting yourself up to not only ruin your professional relationship, but your personal one as well. I hate working for a client that hasn’t paid me, no matter how much I like them, because I feel undervalued.

    If you’re willing to take that risk, by all means, go for it, but isn’t it in your best interest, from a financial standpoint, to take a deposit every time and eliminate that risk?

    • That’s a good point Eli. The deposits still help with cash flow. With familiar clients I still charge the deposit. It’s more that I’ll be more flexible about not collecting depending on the total price of the job. There are also times a good client will ask if they could hold off paying for a week or two due to their own cash flow issues.

      I wouldn’t do that for most existing clients, but there are one or two who I’ve been working with for close to 5 years and I feel the risk is more than worth it with them.

      It does depend a lot on the specific client though.

  3. Good post.

    I’ve always relied on the fact that I’ve got total control over the website.

    Imagine if an electrician could remotely disable his work if the client didn’t pay. Or, to take a novel approach, if a car dealer could disable the car he sold for non-payment of an installment–which can now be done, I understand.

    I always insist on upfront payments for domain name registration and hosting setup. Other than that, I do the following:

    -a step contract where I present an account for hours already done. The client can see the site evolve and I get paid for that evolution.
    -payment in full upon completion. No messing around. With internet banking I expect payment within a few days.
    -if I know the client is genuine, but has limited cashflow, I negotiate large payment on completion, and then a final payment a fixed date.

    Here’s another thing: it’s too easy to do your communication via email only. Insist on actually talking to the client via phone. Establish a relationship.

    If all else fails, make sure you retain control until you have been paid. And never pay setup costs out of your own pocket.

    Ross

    • Even though I’ve suggested not doing it in the post, I have at times relied on the fact that I did have access to the server and could undo my changes. It never made me feel good to think I would have to get a client to pay that way and fortunately I’ve never had to. Something about it doesn’t sit well with me.

      I actually make my clients register their own domains and sign up for hosting. I’ll walk them through it and a few have given me their credit card number and I’ve set up both myself. I want them to be getting the emails about both in case anything happens to me.

      Good point about talking on the phone. With most every client I try to have at least one phone call early on. Email is great, but it doesn’t replace being able to talk directly.

      • Steven, in my country to undo changes on the client’s web is against the law. If the client brings you to the court because of that you probably lose and you will have to pay him financial losses that you caused him with such an activity.

        The deposit is the best solution even if I know the client personally for a long time. There are some clients who paid as planned but when they should pay 2nd or 3rd job they paid slower and slower (i.e. 2 months delay).

        The longer I’m working in this business the more I’m trying to sell my services in the way the client pays upfront. The reason is zero unpaid invoices.

        Thank you for a good article.

        • It might be the same here too. I think the legal thing is for the designer to take the client to court to get paid, however I think if the designer did undo the changes without permission the client could likely win a case against the designer.

          I don’t know that for certain, but I think it’s what would happen.

          I agree. I think deposits are the best way to deal with this. You can make exceptions at times, but most of the time no deposit, no work.

  4. Beautiful and detailed post!

    Its so funny that I just had a more or less argument with one of my clients and just after 10 mins I read this article :)

    I have been working as a freelancer for the last few years now and there are occasions where the client is hesitant for an upfront payment.

    As you said that sometime you have to consider the future business too, but I completely agree with ‘Initial deposit is a must’…this is my experience!

    I knew I was doing the right thing, but didn’t had a detailed explanation for that :)

    Well done Steven!

    Best regards
    Puneet Sakhuja

    • Good timing. :)

      Sometimes it’s a balance since you don’t want to lose possible future work. However when a client promised future work it’s often code for I have no other work for you, but would like you to think I do so I can get the best possible deal now. I think with new clients especially, it’s important to get a deposit to make sure they really are interested in the project.

      No one has every said no to the deposit before. If anything I think it shows you value your time and your business, which makes the client respect you more.

  5. “holding onto login information … isn’t an ethical solution”. Why not? The client is stealing your work by not paying.

    • Two wrong don’t make a right.

      Just because someone steals from you it doesn’t make it ethical to break into their home. I don’t think it’s ethical to make changes to anyone’s site without their permission. I understand if the client hasn’t paid you can feel justified in logging into their server and undoing your changes, but I still don’t think it’s right. I think there are better ways to recover your money.

      Of course if you ask for a deposit upfront the issue is mitigated to a large degree.

  6. I alway ask for a 50% deposit upfront. To me getting a deposit is a sign that the client is just as committed to the project as what I am. If they are hesitant, I give a list of previous clients that they can call.

    If for any reason the client cancels the project the deposit is also the rejection fee. Fortunately in over nine years freelancing I have only had one client cancel a project.

    • “just as committed to the project as what I am.”

      I agree with you 100%, it is extrememly frustrating when a client changes their mind after you have already put hours into a design..

    • Great point. I see it that way to. To me the deposit is in part to ensure the client’s commitment. Until the money changes hands there really isn’t a project at all.

      I’ve been fortunate too. I think it’s only been one client who canceled a project with me too.

  7. I’ve been both ends of the deposit problem, had people do a vanishing act and I’ve taken deposits and months later no site.

    In my defense the two folks that are waiting moved the goal posts in terms of work required and time frame, but as I’ve spent it I’m now obliged to complete when (to be honest) they are jobs I’d rather not be doing.

    • That’s a tough situation when things change and you no longer want to do the project. Unfortunately if you’ve taken a deposit you either have to finish or give the money back.

      It sucks, but you know you can get through it too and then on to other things.

  8. I’ve been a freelance graphic designer for over 10 years now, most times I do take a deposit, in this particular case I did not. Had a client hire me to create a logo design. Had to keep talking to the secretary who had no idea what the client really wanted. “just come up with some ideas” So after 5 go rounds, she says they still don’t really like anything. I asked several times to talk to whomever is making that decision so I could get a clearer understanding of what they were looking for and they were always out of the office. At this point I sent an invoice for my time with a letter stating I would be happy to continue after a meeting with the decision maker. Needless to say they have not paid me. They feel they did not get any final design so why should they have to pay. Apparently my time is worthless to them. I would love to call them and have them come to my house and install some equipment and then tell them I’m not happy with it, so I won’t be paying for it, LOL I definitely learned my lesson on this one. And BTW, the reason I didn’t get a deposit was it was a referral from a large client of mine, so I felt there would be no problem. HA! Live and learn.

    • That sucks. We all have similar stories to share don’t we?

      Isn’t it odd how those few times you don’t ask for a deposit almost always are the times the project goes bad in some way?

      That’s a tough call when the referral comes from a good and large client. You end up treating the new client based on the existing relationship when you really should just treat them like the new client they are.

      I’m glad you still have a good attitude about it. We all make mistakes and sometimes that’s actually good since it helps us avoid bigger mistakes in the future.

  9. boy,
    this online headhunter is one of that

    they had this post on a site that they need a designer for a brochure. as a newbie, i did submit my interest then they did agree that i do the job.

    they liked it and eventually approved it with some minor modifications.

    i did submit the final artwork and they used it for their project.

    next time i emailed the guy for the payment – his answer is… WHAT WORK DID I DO FOR THEM?

    man, that was more than six years ago and the guys name stuck on my head like forever.

    i think they are still online and always hunt for freelancers online.

    • Sorry to hear. That does happen though. Definitely one reason to collect a deposit before starting work. Usually if someone will give you a deposit they’ll pay at the end. And if they don’t you’ve at least made half the money for the project instead of nothing.

    • That sucks :/
      It is the reason all brochure designs I send are screen (not print ready) resolution until final payment is made.

      I got burned only once by trusting a client without a deposit, never again. It demonstrates a client is actually able to pay, too.

  10. Thank you Steven for posting this great topic.
    I want to ask you though, what would you do if you’ve collected a 1/3 deposit, made 3 revisions to the clients specification, and they decide to walk away demanding a refund. Spent two long days working on her project.

    • Ideally there’s a contract specifying what both parties can and can not do, but I take it there is no contract.

      Assuming the deposit was non-refundable I wouldn’t give it back. When I take a deposit from a client I let them know it’s non-refundable in advance. Explain to your client that the deposit was for the time you spent working on their project and it’s non-refundable.

      After that, as hard as it is, its often best to let the client walk away. It’s usually not worth the time and effort to try and collect, unless it was a pretty big job.

      Sometimes though, you can still work to complete the project so both of you end up happy. I’m not sure how things are between you, but maybe you can talk to the client and explain where you’re coming from and listen to their side.

      In the end if it’s unworkable you’re probably better off cutting your losses and moving on to the next project. Learn what you can from this one so the same thing doesn’t happen again and chalk it up as one of the lessons of business life.

  11. Hello, Great blog by the way, I’m facing a client at the moment that keeps telling me that he will make a deposit, but its been a week now, and I don’t want to work any more on his project until I have it. He says he has the money but I can’t understand why he won’t pay up, as he is in a rush to get the website up and running. What should I do? I have sent him a few emails, and we are on talking terms, it just seems he either keeps forgetting or he is being devious, I cant work it out.

    • Thanks Stephen.

      Stop working until you get a deposit. It’s one of the first rules in this business. I had a couple of people try this with me when I first started. They delay you about the deposit and change the subject when you bring it up, but they were always in a rush to get the site done yesterday.

      Obviously I don’t know this person so I could be wrong, but I’d be willing to bet he has no intention of ever paying.

      Let him know another client just gave you a deposit for some work and you have to give precedence to him because he’s paid for you to start. Let this person know if he sends you a deposit you’ll move him back to the top of the work list.

      Then don’t do any work on his project until he pays you.

      I won’t start a project without a deposit. Until someone pays that deposit they aren’t a client. The only time I work in advance of any payment is for clients who’ve been with me a few years. We’ve built a relationship over time based on mutual trust.

  12. Thank you for sharing this great article. I always collect 50% upfront for any project. Never had a problem with it. Do not wait for content to arrive before charging, tell your prospects that you have to book them into your schedule and you need a deposit to guarantee a place for them when they are ready.

    • Me either. It’s never been a problem. I was nervous the first time I asked, but it went well. Since then I’ve never started a job until I have the deposit.

      I’ve been thinking lately that instead of it being 50%/50% I’d spread it out over more payments. That way the client doesn’t have to lay out so much in advance, but it also means most of the site is paid for by the time it’s done. A couple of times I ran into the situation where the site was finished, but the client kept insisting on small changes. It’s hard not to keep making those changes when you’re still owed 50%.

      If the payments were spread out, instead of waiting on 50% at the end you might only be waiting on 20% or 25%. Then then client has more incentive to call the site done and it’s easier to walk away if the client is being unreasonable.

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