If you were a vendor, you would want most of your money up front. This is typically what vendors ask for. But as a purchaser, holding some of the funds can act as security. Recently, I had a group contact me after they signed a poor contract that required almost 80% payment before the system was up and working. They had problems with their vendor, but because they had paid so much up-front, they lacked the leverage to convince the vendor to remedy matters.
As Murphy once stated: “anything that can go wrong – will.” Software is no different; so be aware that milestone based payments can help protect your interests. At a conference one organization told me that their vendor didn’t implement their system in a timely manner. When I asked how much of the total payment they held back, they seemed surprised. It wasn’t until after I explained the concept of milestone-based payments that they understood what they should have done.
Instead of accepting the payment schedule and trusting that all will go well, contracts can be built to ensure vendor performance. A key concept here is milestone-based payments. In this system, as the vendor completes certain pre-determined project milestones they receive a portion of their fee.
Never pay a vendor most of their money upfront. Instead, ask for milestone-based payments. A milestone-based payment system is the best incentive for the vendor to complete the project successfully and in a timely fashion.
Michael Uretz is a thirty-year healthcare IT veteran and nationally-recognized Electronic Health Records (EHR) and healthcare software expert.