When negotiating a contract with a new client, there are several methods that you can agree upon to facilitate payment. One payment plan to consider is using milestone payments. A milestone payment structure is when your client pays you upon the completion of several tasks or phases within the project. An example would include having your client pay 20% upfront, 30% for each of two intermediate steps, and then the final 20% after the project is finished.

Here are some reasons you should consider milestone payments as your compensation method of choice:

You’ll find out early on if your client has a tendency to not pay on time

Often, a contractor may be unknowingly working on a project that they will never get paid for. A milestone payment structure can prevent this from happening. If a milestone has passed and you’ve yet to receive payment, you can take this as a warning to pause work on the project as soon as possible in order to avoid losing more money. You may choose to continue working on the project after you receive payment, but now you know what to expect from your client. Never deliver a final project if you are still missing any of the payments for previously completed milestones.

You’ll secure at least a portion of the money if a project is suddenly canceled

The worst thing that can happen is agreeing to let a a client pay you in full after the project is completed and then they disappear without paying you. This will severely damage your company’s profit and your ability to pay your workers. Normally, this is a high risk possibility for someone who doesn’t sign a contract with their client. Establishing a milestone payment structure will guarantee that you will receive at least some of the money for milestones you’ve already completed in the event that a project is randomly canceled.

It will help you stay on schedule

Delays are a common occurrence during most construction projects. While some delays are unavoidable, many can be caused by drafting contracts that only have a start and end date for the total project, while leaving everything in between vague. This makes it more difficult to schedule commonly overlooked aspects such as when you’ll obtain permits or order supplies and materials. If you and your client agree to milestone payments, you are essentially forced to map out every step of the process to ensure that the project stays on track with the established timeline.

It will help you and your crew stay motivated

Completing a large project by a certain deadline can be overwhelming for you and your crew. Because of this, your project’s progress can take longer than expected due to creative blocks and lack of motivation. The incentive of getting paid for completing small tasks at a time will help keep you focused and working diligently. As a result, you will be more likely and more willing to stick to the scheduled milestones stated in the contract. However, make sure that you aren’t sacrificing the quality of your work just to complete a milestone and secure payment.

You will get paid as you work

As a trade worker, you have likely experienced or heard of the “feast or famine” cycle that many people experience. This is the result of having little to no money for a long time as you work tirelessly for months on a project. When you do get paid, it is often a large sum of money that will compensate you for the work you’ve done. However, these are not the most ideal circumstances when it comes to budgeting money in your own personal life and paying bills on time. A milestone payment structure will ensure that you are getting a steady flow of cash for your labor.

Even within the milestone payment structure, there are many aspects that can vary depending on what type and amount of work you are hired to do. Remember that all payment plans should be negotiable. Consider it a red flag if your client is not willing to consider milestone payments. This could possibly mean they have no intention to pay at all. Before beginning your project, be sure that you and your client have established payment terms that work best for the both of you.