The ‘NET 30 Trap’: Part 2
How Creative Professionals Get Paid More Reliably With Milestones
In 2008 I got my first up-close-and-personal look at how network television shows are produced. The show was Murder in Black & White and my company was hired to handle the entire post-production on this 4-episode series for the television network TV One.
The big challenge? We had 8 weeks to deliver (4) 60-minute television shows. From first assemble through locked picture, color correction, and the final delivery the only aspect of this series I wouldn’t be responsible for was the audio mix. To top it off, they wanted me to be the primary editor on the pilot—to set the mood, tone and look of this short series (I was already color grading full-time at this point but the Executive Producer was a long-time client and I liked the script, so I agreed).
But there was a problem…
How could I unexpectedly triple my staff in 2 weeks without emptying our savings?
After all—I was (and still am today) a solo operator. On Murder in Black & White, I’d have to hire three other editors and install a SAN (for centrally sharing a massive hard drive with the footage for the entire series). Plus, we’d all be working 10-hour days, no lunch breaks—so we budgeted for catering breakfast and lunches plus 15 hours of overtime for each editor each week.
The list of expenses didn’t end there. I had to account for messengers, tape stock, tape deck rentals and, of course, profit—including my fees as a supervising editor, editor, colorist, and facility owner. When I totaled up everything, it was a 6 figure number.
And I had no idea how I was going to pay for all this
I didn’t anticipate this size job. I’ve never aspired to have a full staff of creatives surrounding me. And the last thing I wanted was a team of my peers hounding me for months wondering where their paychecks were as I waited 90 days to get paid by the network.
I expressed my concern to the Executive Producer who wanted to hire me. “Patrick,” she said, “you don’t have to front a dime. Let’s just pay you the way Production Companies get paid. Milestones.”
In this Insight, we’re going to talk about ‘Milestones’ as a fantastic alternative to NET 30 payment terms
When my EP explained the Milestones concept to me, it was a revelation. I had been in this business for 15 years—and suddenly, here were payment terms that made a TON of sense. And not just for production companies and post-production facilities. It makes a ton of sense for the creatives that get hired by those entities.
In this Insight you’re going to learn:
- Milestones: What are they?
- Common Milestones for color correction jobs
- Less than obvious Milestones for long-term editing gigs
Let’s start with the concept of ‘Payment Milestones’
As my Executive Producer explained to me on Murder in Black & White, there are several different payment structures that television networks use when paying for original programming—and one of them is paying the production company at a set, clearly defined moments in the life-cycle of a project. For instance: A simple structure would be a three-milestone payment structure
- Payment 1: At the start of production
- Payment 2: At the start of post-production
- Payment 3: At final delivery of the very last series element (with a very clearly defined list of what those series elements are that need to be delivered for the final check to be cut).
Another example of a 3-milestone payment structure is what we used for our series
With Murder in Black & White, I needed a large payment up-front to cover the start-up costs (including salaries). I asked for 40% up-front, 30% when Episode 2 passed QC and 30% when the final episode was delivered. Since this was an accelerated post-schedule and we were brought in at the last minute—the network agreed to this schedule.
‘Milestone Payments’ are terms for immediate payment
The client and the service provider both agree to a set of terms upon which checks are immediately issued. It’s clearly stated that payment will only occur when a Milestone is reached and payment will be immediate for the service provider to continue working on the project.
In my experience, the up-front payment is critical for Milestones to work. They ensure most of the initial costs are covered. For you, the service provider, it’s a great indicator that your client actually has the funds to cover your work and you won’t be waiting 90 days after the client agreed to NET 15 or NET 30.
Now that we’ve defined the ‘Milestone Payment’ it’s time to apply it to editors and colorists.
Next, let’s talk about how you apply Milestones to creative freelancers and solo-entrepreneurs?
Let’s start with the (generally) simpler, pure color correction projects. Unless you’re working on-set or on the rare A-List Hollywood tentpole film, the average color correction gig lasts from a few hours to a week or two. The good news? If your client rips you off, you’re not out more than a week’s worth of time. The better news? You NEVER have to be worried about being ripped off since Milestone’s payments are so easy to define and execute.
On a several day gigs, there are two clear Milestones
- Before the job begins: Literally, you’re requesting that a client hand you a check when they walk in the first morning of a job. How much should you ask for? I follow the same rule as Mixing Light member and professional colorist Marc Weilege mentioned in his comment to Part 1 of this Insight—require 50% of the total quote to begin.
- At final delivery: Notice the word ‘at’. Not ‘after final delivery’. You’ll hand over your final deliverable at the same time your client is handing you a check. And you’re asking for the full balance owed. When the client walks out of your suite, you should be fully paid up.
What are some variations to this Two Milestone theme?
If a client is booking me for a week straight and the job is more than two weeks out then I’ll usually ask for a 10% Firm Booking payment. It locks in those color grading days for my client (Robbie wrote about this booking system way back in Mixing Light Insight #11). Then I’ll ask for 40% on the first day of the job and 50% to hand over the final deliverables.
As I write this, I have an upcoming job that’s five days over 3 months, with the first 4 days in Month 1. Given the gap in the schedule, my client and I settled on 50% to start on Day 1, 25% on Day 4, then the final 25% when Day 5 gets completed two months later. It’s a fair payment structure.
On a one-day gig, multiple Milestone Payments don’t make much sense
Instead, I usually make sure they have the check on-person when we start the job and they hand over the check as I’m handing them their hard drive with the final deliverables. Often I’ll ask for a 10% Firm Hold if the job is more than a week out—or especially if I think they’re shopping around or aren’t fully serious. Requesting that 10% Firm payment usually lets you know if your client intends on following through with you.
Lastly, let’s talk about using Milestone Payments on long-term (3+ week) projects
As more editors use color correction as a sub-specialty, and we have a strong complement of editors here on Mixing Light, here are a few ideas on how to use Milestone Payments on jobs lasting 3 weeks or more. The thing to recognize on these types of jobs, if you’re not getting paid extremely regularly your Milestone Payments will feel to your client a lot like the NET 30 schedule we discussed in Part 1. And since Milestones don’t contain the penalty structure of NET 30, this can be a trap as well.
If you’re not careful, you could find yourself so deep in the financial hole to your non-paying client that you’ll be too fearful to execute the only real leverage you have: Walking off the job.
On long-term projects, negotiate your Milestones at frequent and set intervals
Personally, I prefer the weekly payment schedule, with payment due 3 business days after you submit your Invoice for the prior week’s schedule.
Hint: If you use the Harvest Time Tracking service from a previous Insight, you can bill your client just as you’re walking out the door at the end of the week! (do you see how these series of Articles are all coming together?)
Back in my freelance editing days, my favorite clients used a Payroll company that specialized in television and film. They paid every two weeks like clockwork and if a client used them to pay me, I never quibbled over getting paid every two weeks. Here’s a list of Entertainment Industry payroll companies. I believe the one I always ran across in New York City was Entertainment Partners.
Another Milestone is the ‘Maximum Allowed Accrual’
Under the Maximum Allowed Accrual scheme, you agree to a more liberal payment schedule (say, on the 1st / 15th or once a month). But you set a maximum that your client is allowed to have outstanding with you. Once they hit that threshold number, they must pay you within 3 business days. This is especially important if you find yourself doing a ton of un-planned overtime.
And what is that Maximum Accrual number? That’s up to you to decide. Personally, I wouldn’t let it exceed more than a month of my personal expenses (assuming I had a 3-month emergency fund in my savings).
By keeping your Maximum Allowed Accrual scheme to within a number you can safely cover from savings—you retain for yourself the ability to walk off a job and work for a client that can actually pay you according to the terms you’ve both agreed!
But Patrick, my country/city/market only does NET 30!
I used to believe the same thing about New York City. Until I started requesting Milestone payments. The beauty of Milestone payments is it’s the structure used to finance so many of the projects we work on. You’re almost never asking to be paid in a manner that your client hasn’t negotiated for themselves! At worst, you’re revealing yourself to be a savvy creative professional. At best, you’ll transition almost all of your clients to Milestones, giving you immediate payments.
Now, some clients need NET 30 because they’re so behind on paying their other vendors they need to pay you in 60 or 90 days. They’ve mismanaged their business to the point they’re very nearly running a Ponzi scheme—even if that is never their intent. Bad things happen to good people. Especially creatives who are trying to run a business.
Milestone payments are a terrific way to weed out clients who are planning on paying late as a cashflow management tool.
Be sure to avoid these two common mistakes
- Don’t get owed more than you can afford to lose: This is such an important point I need to mention it a second time. If you get so deep into a financial hole with a client that you’re afraid to walk off a job because you might never get paid… Milestone is a terrible idea. For this to work you must have the financial ability and intestinal fortitude to walk off the job for non-payment of services.
- Build your Milestone payments into your Quotes: Always include a line or two about when exactly you are to be paid based on very non-subjective payment terms, including the Maximum Accrual Threshold for long-term gigs. I especially like using online Quoting and Invoicing tools that require a client to ‘Accept’ or ‘Decline’ your quote. By doing so, they’re demonstrating that they’ve read your terms and agree to them—should a dispute arise later.
Wrapping it up: Remember, Milestone payments rely on two very specific bits of leverage
First: On shorter gigs, you must be willing to withhold your final work until you get paid.
Second: On longer gigs, you must be willing to walk off the job for non-payment.
If you aren’t willing to enforce those measures, then you need to consider if NET 30 is better suited to you (but then, only if you’re willing to offer both a carrot and a stick as we discussed in Part 1).
But what if you don’t think you can do ANY of these things? Then you should probably be looking for a staff position. Running your own business, billing your clients and collecting money are all part of being a freelancer or a solo-entrepreneur. If you can’t execute these ‘moves’ then you either need to partner up with someone who can or work for someone who has people who will do these things on your behalf (it’s the beauty of working within a larger company).
Do you have billing horror or success stories you want to share?
As you’ve been reading this, if you have some points of clarification that occurred to you—or alternatives to these billing methods—then use the Comments below! If you’re logged into the site, you can just go ahead and Comment. There’s no need to set up an account with Disqus.