If you are self-employed or the owner of a business that provides services to other businesses, there are a few rituals you have to go through to get a new customer on board.
One important thing is to define the scope of work, determining what they’re actually hiring you to do. This seems to get the least amount of attention, for some reason — less than the confidentiality terms and the payment terms, in most cases.
For us, another step usually involves negotiating payment terms and obtaining a retainer, a modest advance fee that insulates us from the tyranny of net 30 payment terms. Net 30 is tricky for a small business because it often means you don’t see a dime for your work for two months (because work done on day 1 gets invoiced on day 30, then paid on net 30 terms — you get your check on day 60). We try to negotiate net 15 payment terms with our customers for this reason, with the understanding that if they’re paying their employees twice a month (as nearly everyone does) they should be able to pay us twice a month as well.
I find that our favorite clients, the ones who we cheerfully work past midnight for, are the ones with the most generous payment terms.
In addition to keeping your cash flow sensible, getting a retainer up front also ensures that the company you’re working for is actually capable of cutting a check. You’d be surprised at how often startups attempt to hire consultants before they hire accountants or open a corporate bank account.
The retainer also gives you a little leverage, insulating the little guy (you) from situations where the big guy (your client) becomes unreliable for some reason. I had one situation this year where a client could not focus internally on what they wanted to do. I tried to get them to focus on something small and tangible, but the company’s executives spent a lot of time in meetings, bickering with me and with each other about what they wanted to do. They had ambitious plans which I finally convinced them to break out into manageable chunks. But they then they bickered over which chunks to prioritize first. Finally, after receiving my bill, they decided they weren’t going to pay me because nothing had been accomplished, even though I was working on a time/materials basis and not based on their ex post facto subjective analysis of what we’d accomplished together. Fortunately, the retainer covered about 90% of what they owed me, so I didn’t have to pay much for their inability to get it together.
During my first stint as a self-employed consultant from 1991 to 2000, I didn’t always insist on getting a retainer up front, and I nearly always regretted it when I didn’t (particularly in 2000 when a bunch of our clients went out of business in the same month, leaving us holding the bag for a bunch of fees). Now I always insist on a little something up front; this year I’ve actually turned away business from companies that either weren’t comfortable with or weren’t capable of paying a retainer.
The only exception I’ll make here is when the company is very well established (think Fortune 100 or large government agency). We actually just closed a deal with such an organization recently, which was a fun negotiation. I’ll go into more detail about what we’re doing for them when things are more fully baked, but one interesting thing I found was that the "can you do this for us?" part of the negotiation went very smoothly, in part because we’re dealing with someone at the executive level who we’ve known and worked with for years. But the bureaucracy in landing a deal of this size is understandably much more involved.
One of the things that can help a lot in this situation is to have all your ducks lined up. Your corporate documents should be available to you, in PDF format, preferably, from any computer with an internet connection so you can send it quickly to whoever requests it. The same goes for your W9 — in fact, if you’re a U.S. company there’s no reason not to have an electronically signed copy of your W9 in PDF format somewhere on the web. Everybody asks for it, and the form is the same for everybody (it just contains your corporate tax ID and signature) so you should just fill it out once and post it to the web. Some sneaky or careless customers will only ask for the W9 thirty days after you’ve sent your first invoice, so we post a link to our downloadable W9 at the bottom of all the invoices we send. That way we aren’t providing yet another excuse to pay a bill more slowly.