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Practice Areas: IT Project Management, IT Strategy, Organizational Project Management
Project Fee Structure & Recovery
Network:167



I am working as Head-Operations with IT firm with 70+ resources, we do get the projects mainly from Freelancing portals like freelancer.com, upwork.com and very few from Old clients etc.

We are facing problem of receiving the Project fee from the clients on decided timeline, few clients are serious to pay on-time but other didn't act seriously and didn't pay on-time.
Many of client's didn't respond via chat,Skype,Email or messaging on freelancing portals.


1. What strategies we should build so that client will be in touch as well as they will pay us on-time or share feedback on-time.?
2. Is there any standard practices for Project Fee Structure or pending project fee recovery in PMI?

Please help and suggest way to overcome on this situation.
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Network:100



Prashant,
I hope you have some SOW/Legal Doc signed by both you and client before starting the work as is the practice in IT industry. If its a Fixed Fee(FP) project, I hope you have spread the milestones of the project linking the payment to the outcome and you have to design the milestone carefully to cover your expenditure( Eg: 10% on signing the contract, 20% on design acceptance etc.). In the case of a Time and Materials(TM) project anyways you would be billing the client month or fortnightly and can stop the work in case of non-payment

If people refuse to pay on time, you can add a penalty clause in the SOW or rather give some discount for clients who make payments on time and include the clause in the SOW. These are some generic ideas and there are many to deal with such clients which would vary with each situation. You would need to work closely with the legal counsel in your company to put these together clauses in the SOW.

Happy to help in case of any further queries.
...
1 reply by Prashant Sonwane
Jun 29, 2017 1:35 AM
Prashant Sonwane
...
Hi Ramachandran,

Thanks you for your valuable inputs on my queries.

1. Yes, we have SOW and Contract signing process with us and referring to the same we creates the milestones in Freelancing portals. We request to clients to create the milestones. When you are a freelancer provider company then you can request to clients for creating the milestone which discussed or have to wait until they creates it.

2. We receives payments directly through PayPal or Wire-transfer or through escrow systems in Freelancer portal. When we followup to the clients for Payments and if he didn't reply on-time, we escalate issue with support team but they have term that if client didn't replied for 3 months then they will take actions on them. Ultimately we are not sure about their actions and waiting for 3 months for payments is a loss to company.

3. Though we mentions maximum turn-around time of 24 to 48 hrs in contract but client didn't follow it strictly (This happens mainly with the part-time clients or agencies).

4. There are many scenarios where we have either stop/hold the projects or have to compromise with milestone terms to get paid.

Please share your thoughts on it.
Network:968



Put it all (ie. feedback schedule, payment dates) in a very well constructed legal contract and SOW. That will solve both issues/questions you have raised. When I say solve, I mean the client still may not do it, but you will have legal recourse to claim damages.
...
1 reply by Prashant Sonwane
Jun 29, 2017 1:40 AM
Prashant Sonwane
...
Thanks Sante for your valuable inputs on my queries.

Yes, we have legal contracts with clients but to process recovery through takes time and cost which could be greater than pending recovery.
(e.g. Freelancing portals have policy in place to wait for client at least for 3 months to get back to us so 3 months time is waste of time without getting paid though we have paused the work)

How do we keep in touch with clients on regular basis?
Network:65117



Many strategies can be consider, first that come to mind is progressive delivery, so progressive payment. No delivery for next segment until previous is paid.
You can add a discount for early payment!

I don't think PMI has project fee structure suggestion, just has stated by Sante all the needed paperwork.
That will be different according to your region and industry.
...
1 reply by Prashant Sonwane
Jun 29, 2017 1:42 AM
Prashant Sonwane
...
Thanks Vincent for your valuable inputs on my queries.

Yes, I can definitely try for "No delivery for next segment until previous is paid" but not sure at this moment how this will give us expected results but I will definitely this approach in front of my managers.
Network:167



Jun 28, 2017 9:24 AM
Replying to Ramachandran Swaminathan
...
Prashant,
I hope you have some SOW/Legal Doc signed by both you and client before starting the work as is the practice in IT industry. If its a Fixed Fee(FP) project, I hope you have spread the milestones of the project linking the payment to the outcome and you have to design the milestone carefully to cover your expenditure( Eg: 10% on signing the contract, 20% on design acceptance etc.). In the case of a Time and Materials(TM) project anyways you would be billing the client month or fortnightly and can stop the work in case of non-payment

If people refuse to pay on time, you can add a penalty clause in the SOW or rather give some discount for clients who make payments on time and include the clause in the SOW. These are some generic ideas and there are many to deal with such clients which would vary with each situation. You would need to work closely with the legal counsel in your company to put these together clauses in the SOW.

Happy to help in case of any further queries.
Hi Ramachandran,

Thanks you for your valuable inputs on my queries.

1. Yes, we have SOW and Contract signing process with us and referring to the same we creates the milestones in Freelancing portals. We request to clients to create the milestones. When you are a freelancer provider company then you can request to clients for creating the milestone which discussed or have to wait until they creates it.

2. We receives payments directly through PayPal or Wire-transfer or through escrow systems in Freelancer portal. When we followup to the clients for Payments and if he didn't reply on-time, we escalate issue with support team but they have term that if client didn't replied for 3 months then they will take actions on them. Ultimately we are not sure about their actions and waiting for 3 months for payments is a loss to company.

3. Though we mentions maximum turn-around time of 24 to 48 hrs in contract but client didn't follow it strictly (This happens mainly with the part-time clients or agencies).

4. There are many scenarios where we have either stop/hold the projects or have to compromise with milestone terms to get paid.

Please share your thoughts on it.
Network:167



Jun 28, 2017 11:45 AM
Replying to Sante Vergini
...
Put it all (ie. feedback schedule, payment dates) in a very well constructed legal contract and SOW. That will solve both issues/questions you have raised. When I say solve, I mean the client still may not do it, but you will have legal recourse to claim damages.
Thanks Sante for your valuable inputs on my queries.

Yes, we have legal contracts with clients but to process recovery through takes time and cost which could be greater than pending recovery.
(e.g. Freelancing portals have policy in place to wait for client at least for 3 months to get back to us so 3 months time is waste of time without getting paid though we have paused the work)

How do we keep in touch with clients on regular basis?
Network:167



Jun 28, 2017 2:05 PM
Replying to Vincent Guerard
...
Many strategies can be consider, first that come to mind is progressive delivery, so progressive payment. No delivery for next segment until previous is paid.
You can add a discount for early payment!

I don't think PMI has project fee structure suggestion, just has stated by Sante all the needed paperwork.
That will be different according to your region and industry.
Thanks Vincent for your valuable inputs on my queries.

Yes, I can definitely try for "No delivery for next segment until previous is paid" but not sure at this moment how this will give us expected results but I will definitely this approach in front of my managers.
...
1 reply by Vincent Guerard
Jun 30, 2017 7:57 AM
Vincent Guerard
...
Some kind of Agile way, make smaller delivery package.
You deliver a first working package after x time, invoice, work on next delivery package (2 weeks), check if previous is paid.If not send the customer info that next package/increment is ready awaiting payment of previous package to be deliver.
Smaller payment, regular cashflow no long work that don't get paid.
Network:100



Prashant,

I hope you are working with Indian clients and working with Indian clients on Financials matters is not easy.I think you have all the mechanisms in place but it is just that the client is not ready to pay or not even responding to your mails. As an outsider, I am trying to analyze the situation and these are the reasons that I can think of why the client is unwilling to pay.

1. Is the client happy with the overall delivery, and is he complaining on the quality of deliverable frequently? These are symptoms you need to address early. Does he/she bring up delivery issues when you ask for payment. I am not saying delivery is bad but that may be the client's perception and you need to somehow change that. Try socializing with them or take them to lunch or something like that

2. Client is happy with delivery but not in a good financial position. This aspect is very important. Before you sign a contract with any company you need to do basic study about their financial position in the market(Try to go through their balance sheet if its a public company, study their annual revenue, marketshare, competition, recent organizational changes etc). This is more of a sales guy's job but this needs to done for all these troublesome clients. For your existing projects, it might be a good idea to do this and mark potential defaulters and give special focus on them

If you find before signing the contract that the client is not in a good financial position, the convince your mgmt not to go for that project

3. Client has got someone else who would do the rest of the job better or cheaper or both. This is a tricky scenario and all that you can do here is ensure that you at least get good margin from the work already done. Design your payment milestone so that the payment received is proportional to the effort or you have put in and build sufficient margins in your rate card
...
1 reply by Prashant Sonwane
Jun 29, 2017 6:19 AM
Prashant Sonwane
...
Hi Ramachandran,

No, we do only offshore development and only few branded Indian companies we works with. In my current scenario, I have not considered Indian customers.

1. Yes, few of the times client comes with minor issues on design or workflow but we fix them in maximum 2 working days and takes approval on it. But this cycle of minor changes reiterate from client end saying few more issues needs to be addressed which he/she has not shared in previous feedback. We can not hold them for fixing issues of 8-10 hrs. But if this iterations continues for 2-3 cycles then we overrun with extra efforts of 24-30 hrs without getting paid. Only sake of getting paid we have to provide this service though we follow the CR (Change Request) process. Many times client didn't appreciate for such minor new changes with extra price.

2. We do the client verification and financial capcity by reviewing their Profiles on Freelancer.com or Upwork.com. They provides data as "Payment Verified","Email Verified" etc and "Spent $$$ in previous projects". We do contracts with such clients only.

But we didn't study their market-share,balance sheet,annual income.
Do you have any strategy to do this?

3. Yes, milestones are created based on planned efforts vs Actual efforts. What is best recommended strategy so that client will stick to it? I have planned to follow the Vincent suggestion "No delivery for next segment until previous is paid" or "Progressive delivery and Progressive payments"

Is there anything else you can contribute into it?
Network:167



Jun 29, 2017 2:38 AM
Replying to Ramachandran Swaminathan
...
Prashant,

I hope you are working with Indian clients and working with Indian clients on Financials matters is not easy.I think you have all the mechanisms in place but it is just that the client is not ready to pay or not even responding to your mails. As an outsider, I am trying to analyze the situation and these are the reasons that I can think of why the client is unwilling to pay.

1. Is the client happy with the overall delivery, and is he complaining on the quality of deliverable frequently? These are symptoms you need to address early. Does he/she bring up delivery issues when you ask for payment. I am not saying delivery is bad but that may be the client's perception and you need to somehow change that. Try socializing with them or take them to lunch or something like that

2. Client is happy with delivery but not in a good financial position. This aspect is very important. Before you sign a contract with any company you need to do basic study about their financial position in the market(Try to go through their balance sheet if its a public company, study their annual revenue, marketshare, competition, recent organizational changes etc). This is more of a sales guy's job but this needs to done for all these troublesome clients. For your existing projects, it might be a good idea to do this and mark potential defaulters and give special focus on them

If you find before signing the contract that the client is not in a good financial position, the convince your mgmt not to go for that project

3. Client has got someone else who would do the rest of the job better or cheaper or both. This is a tricky scenario and all that you can do here is ensure that you at least get good margin from the work already done. Design your payment milestone so that the payment received is proportional to the effort or you have put in and build sufficient margins in your rate card
Hi Ramachandran,

No, we do only offshore development and only few branded Indian companies we works with. In my current scenario, I have not considered Indian customers.

1. Yes, few of the times client comes with minor issues on design or workflow but we fix them in maximum 2 working days and takes approval on it. But this cycle of minor changes reiterate from client end saying few more issues needs to be addressed which he/she has not shared in previous feedback. We can not hold them for fixing issues of 8-10 hrs. But if this iterations continues for 2-3 cycles then we overrun with extra efforts of 24-30 hrs without getting paid. Only sake of getting paid we have to provide this service though we follow the CR (Change Request) process. Many times client didn't appreciate for such minor new changes with extra price.

2. We do the client verification and financial capcity by reviewing their Profiles on Freelancer.com or Upwork.com. They provides data as "Payment Verified","Email Verified" etc and "Spent $$$ in previous projects". We do contracts with such clients only.

But we didn't study their market-share,balance sheet,annual income.
Do you have any strategy to do this?

3. Yes, milestones are created based on planned efforts vs Actual efforts. What is best recommended strategy so that client will stick to it? I have planned to follow the Vincent suggestion "No delivery for next segment until previous is paid" or "Progressive delivery and Progressive payments"

Is there anything else you can contribute into it?
...
1 reply by Ramachandran Swaminathan
Jun 30, 2017 2:17 AM
Ramachandran Swaminathan
...
Prashant,

See my replies for each of your points above

1. Unexpected small CRs are bugging issues in all projects. What you can do for next project is bundle some development hours(Say xy hours) at a certain $ rate along with your normal work for which scope has been firmed up. You consider this bucket of hours as some reserve which will be used only in the case of necessity. Whenever you get such small CRs consume the hours from this reserve and invoice the client separately or along with your normal invoice. Mention this bucket of hours in the SOW along with the scope clearly. When these hours are consumed fully during the project, revise the SOW to include additional hours if needed

2. Since you are working with branded companies, their financials position may not be a problem here. Anyways for listed companies, you can get their balance sheet from the website, and you can also get few info from wikipedia, over internet etc. This will not give exact info, but apprx info

3. Stopping work if the client doesnt pay is definitely one strategy. But this may alienate the client is the delay is due to genuine reasons. Another one is to include a penalty clause for delayed payment and include this in the SOW. But if the client really doesnt want you pay you, then this will not have any effect
Network:100



Jun 29, 2017 6:19 AM
Replying to Prashant Sonwane
...
Hi Ramachandran,

No, we do only offshore development and only few branded Indian companies we works with. In my current scenario, I have not considered Indian customers.

1. Yes, few of the times client comes with minor issues on design or workflow but we fix them in maximum 2 working days and takes approval on it. But this cycle of minor changes reiterate from client end saying few more issues needs to be addressed which he/she has not shared in previous feedback. We can not hold them for fixing issues of 8-10 hrs. But if this iterations continues for 2-3 cycles then we overrun with extra efforts of 24-30 hrs without getting paid. Only sake of getting paid we have to provide this service though we follow the CR (Change Request) process. Many times client didn't appreciate for such minor new changes with extra price.

2. We do the client verification and financial capcity by reviewing their Profiles on Freelancer.com or Upwork.com. They provides data as "Payment Verified","Email Verified" etc and "Spent $$$ in previous projects". We do contracts with such clients only.

But we didn't study their market-share,balance sheet,annual income.
Do you have any strategy to do this?

3. Yes, milestones are created based on planned efforts vs Actual efforts. What is best recommended strategy so that client will stick to it? I have planned to follow the Vincent suggestion "No delivery for next segment until previous is paid" or "Progressive delivery and Progressive payments"

Is there anything else you can contribute into it?
Prashant,

See my replies for each of your points above

1. Unexpected small CRs are bugging issues in all projects. What you can do for next project is bundle some development hours(Say xy hours) at a certain $ rate along with your normal work for which scope has been firmed up. You consider this bucket of hours as some reserve which will be used only in the case of necessity. Whenever you get such small CRs consume the hours from this reserve and invoice the client separately or along with your normal invoice. Mention this bucket of hours in the SOW along with the scope clearly. When these hours are consumed fully during the project, revise the SOW to include additional hours if needed

2. Since you are working with branded companies, their financials position may not be a problem here. Anyways for listed companies, you can get their balance sheet from the website, and you can also get few info from wikipedia, over internet etc. This will not give exact info, but apprx info

3. Stopping work if the client doesnt pay is definitely one strategy. But this may alienate the client is the delay is due to genuine reasons. Another one is to include a penalty clause for delayed payment and include this in the SOW. But if the client really doesnt want you pay you, then this will not have any effect
Network:65117



Jun 29, 2017 1:42 AM
Replying to Prashant Sonwane
...
Thanks Vincent for your valuable inputs on my queries.

Yes, I can definitely try for "No delivery for next segment until previous is paid" but not sure at this moment how this will give us expected results but I will definitely this approach in front of my managers.
Some kind of Agile way, make smaller delivery package.
You deliver a first working package after x time, invoice, work on next delivery package (2 weeks), check if previous is paid.If not send the customer info that next package/increment is ready awaiting payment of previous package to be deliver.
Smaller payment, regular cashflow no long work that don't get paid.

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