For startups making sales to larger enterprises, getting paid is critical. When some degree of customization or integration is involved, payments can be delayed or denied if expectations are not clearly set out, both in person and on paper.
Great relationships with customers can often overcome problems arising from vague contract language, but having a crisp approach to milestones and acceptance processes will help everyone involved.
Custom services and integration work will usually be specified in a Statement of Work, or SOW. The SOW can be stand-alone, or tied in to a broader agreement, such as a Master Services Agreement, or MSA.
Assuming you have a series of deliverables described in the SOW, a milestone table with deliverables, dates, acceptance criteria and a payment schedule is a good way to set everything out clearly.
It is normal to ask for a chunk of money upfront, upon signature. And normal to get pushback! Fifty percent or more is good, anything above 25% is reasonable, and, of course, it depends on the project. A startup will always be mindful of cash and can often make the argument that the funds are needed to support working capital requirements to deliver what was promised in the SOW (e.g., hiring, equipment, getting external environments ready).
Both parties may be skittish about being “done.” The supplier may have had previous customers who never felt the project was finished and kept asking for more and more changes. And the customer may have experienced suppliers who dropped a terrible deliverable and refused to get it to the point it could really be used.
Good, detailed acceptance criteria help both sides get comfortable. As a supplier, try for deemed acceptance after a short number of days without hearing from the customer in writing that they don’t accept the deliverable. This will keep the timing on track. You can put time commitments around remedying any faults and subsequent approvals. Try for deemed acceptance if the customer puts the deliverables into commercial production. The idea being that if it is good enough for the customer to put into market and start benefiting from, it is good enough for you to get paid.
Disclaimer: This is not a substitute for legal advice!
The Milestone Deliverables are deemed accepted by Customer (“Default Acceptance”) at the time of Delivery (“Default Acceptance Date”), unless Supplier is notified in writing of any failure to meet the Acceptance Criteria within ten (10) calendar days (or other timeframe documented in writing and agreed upon by the Parties) after Delivery, or upon Customer’s commercial use of the Deliverables.