Most freelancers think about payment terms as a question of trust. Will this client pay? Do I seem difficult if I ask for a deposit?

There is a more useful way to look at it. Every hour you work before you are paid for it is money you have lent to your client, interest-free, with no security. The amount you are owed at any moment is your exposure : the value of work you have delivered minus the cash you have received. It rises as you work, falls when a payment lands, and it is exactly what you lose if the client disappears tomorrow.

Payment terms decide how big that number gets and how long it stays there. The difference between a good structure and a bad one is not a few percent. On the same project, it is four times as much money at risk.

The Setup

Take one project and run it three ways.

A $12,000 build, ten weeks long, with the work spread evenly: $1,200 of work delivered each week.…