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1. It indicates both parties are serious
A common refrain when discussing terms of a project, and reviewing statement of work – “when shall we get started?”. The answer should be, “I’m ready to get started anytime you like. Would you like to use paypal or ACH for deposit?”.
The deposit signals to the vendor that it’s time to get working. This client has the budget and is serious about moving forward today.
2. It protects against scope changes
Startups & seasoned businesses alike have changing needs. That’s why they may choose a situational resource to begin with.
If the winds change, and we don’t need you tomorrow, a deposit defrays the final invoice, and or discounts you may have applied.
3. Insurance if business fizzles
Fizzling business, is a nice way to say the market has changed. Perhaps the startup has decided to pursue other opportunities. In close to twenty years of business I’ve only had this happen twice.
Once I was working with a rewards card business. They were already having trouble meeting payroll. Turns out businesses have a legal obligation to meet payroll. That’s another way of saying they’re at the top of the who-gets-paid list. And vendors may be closer to the bottom. They owner went back to being a lawyer, his profession before the startup.
All in all, a deposit provides some insurance in these cases.
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4. Signals your maturity to client
This is a hard one for some freelancers and consultants to stomach. “I really want to get going with consulting, and don’t want to turn away this client.” The thinking goes. But consulting is a peer relationship, where vendor and client need to be on an equal footing.
Your need for a deposit, and willingness to walk away without one, says to the client you are professional and have been in business for some time.
5. Protection from early termination
That sounds ominous but it doesn’t have to be. In the world of freelance and consulting, a client can decide they no longer need your services tomorrow.
Why? Perhaps they hired a fulltime resource? Perhaps their needs changed? Perhaps the storm of site outages have passed and the urgency has changed.
Whatever the reason, projects change. If you’ve offered a discount for three months of work, but only end up with one month of work, your full fees may apply. In that case, the deposit should be the discount amount.
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