In freelancing, retention refers to a portion of your payment that a client holds back until a project is fully complete. It's a common clause in longer-term contracts, especially for project-based work.
What is Retention?
Retention is a contractual agreement where a client withholds a small percentage, often 5-10%, of your total project fee. This withheld amount is released only after you deliver the final work and the client is satisfied. It acts as a security deposit for the client, ensuring you complete all project requirements.
Why is this important?
For you, retention directly impacts your cash flow, as you receive the final payment later. For clients, it's a risk management tool to guarantee quality and timely completion. Understanding retention helps you negotiate fair terms and plan your finances accurately throughout a project's lifecycle.
How does it work?
You and the client agree on a retention percentage in the contract. As you invoice for milestones, the client pays the agreed amount minus the retention portion. For example, on a $1000 milestone with 10% retention, you'd receive $900. The total withheld amount is paid in a final invoice after project sign-off.
Pros and cons
The pros include building client trust and aligning your incentives with project completion. The main cons are delayed income and potential cash flow strain. It can also lead to disputes if the release terms are vague. Weigh these factors before agreeing to a retention clause.
Conclusion
Retention is a standard but significant part of many freelance contracts. By understanding its purpose and mechanics, you can negotiate better terms and manage your business finances more effectively. Always clarify the release conditions in writing to protect your interests.
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