When should a subcontractor get paid? Upon delivery of product or upon collection of payment from client?

Question

I am an independent consultant. This consulting company wants me to do a couple of projects for their clients as a subcontractor. That's a perfect arrangement for me, as I don't want to be anyone's employee and want to be able to take or pass on assignments based on my own schedule when my own consulting business is slow.

However, in their agreement with me they want it to be such that I get paid when they collect fees from their client. I don't like that arrangement because it doesn't give them much incentive to collect their fees and puts me in a situation where I can't get paid and have no recourse to collect.

Is this a typical arrangement? Should I ask them to change it, pass on them altogether or accept it?

Answer 1

for smaller places this is pretty common However since it concerns you (as it would me) I would not sign the agreement without having a chat with them to discuss it further and making the necessary modifications

Answer 2

It isn't unusual for a sub to get paid after the fee is collected from the client, but you're right, that doesn't leave you with much security. You could try to set up an payment agreement that includes a partial payment upon delivery of product with the remaining to be paid when they receive payment from their client. You could even incorporate a deposit, paid at the beginning of the project, if you felt it was necessary (generally if you have to purchase supplies in order to do the project). You could also modify the agreement to state that you will be paid within a certain number of day after you deliver the product, regardless if they collect from their client or not. Do a little negotiating up front and get it in writing.

Answer 3

I think it is common for the general contractor (consulting company in this case) to do what you describe.  However you could try to negotiate a percentage of expected income to be paid periodically while under contract.  You can also try to add some language in  your agreement around the timing of payments to ensure the general contractor collects their payments in a timely manner.

Answer 4

I can't think of a single industry where you-get-paid-when-we-get-paid is normal except under the most limited and informal circumstances. The contractor is responsible for accepting your completed work, and if they make a bad call, that's a shame and it's up to you whether you want to charge them again to redo it.

Because your agreement is with the consulting firm and not the client, whether the client ever pays them is not your business or your problem. The normal business payment cycle is 30 days from delivery, so make your terms 45 or 60 days, which will give them time to collect on the debt in a normal time frame but doesn't condition your pay on them doing so. You're still acting in good faith that they will honour their obligations to you and keeping everything friendly, but your interests are protected.

You aren't in the business of subsidizing their failure to screen clients or enforce contracts, and because their agreement doesn't involve you, you would have no way to know whether they had been paid as expected.

So even if you're paid late, that doesn't mean you won't get paid at all. Just don't tie your terms to the end user's behaviour because there is absolutely no reason why you should.