Now that you have decided to work together, whether you are the client or the software developer, how are you going to decide the timing of payments for work performed under a Software Development Agreement/Master Services Agreement (MSA)? In order to properly protect yourself, there are a few considerations you should make regarding payment.
Deposit
In the case that the vendor is planning to allocate a significant amount of time, staff and resources to assist the other party, it is normal to ask for a security deposit in the payment clause. Terms relating to refunding a security deposit are usually either bundled with the payment clause, or are contained as part of the effect-of-termination or remedies clauses within the contract.
Top-ups
Retainer top-ups that are either periodic (for a fixed fee quote) or that are intended to replenish an extinguished retainer are common.
Refunds
With respect to a refund policy, the language and mechanisms around work performed and/or not performed is typically contained in the termination and/or effect of termination provisions and/or remedies provisions of an agreement, in the event that work is not performed as expected. More detail can be found in those sections of this series of discussions.
Good Faith
In absence of having funds on account, a clause requiring that the parties will proceed in good faith may be found within the fees or scope of work section of an agreement. This clause is intended to deal with work that is performed that may be out of scope and possibly not quoted for. The idea behind this clause is to say that the vendor intends to bill for this work requested or performed and believes that the customer is willing to pay for the work based on the terms of the agreement (and the hourly rates specified). This clause is intended to capture urgent requests that need to be dealt with immediately, for which the parties might not have time to properly scope and budget for.
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This is the second part to a nine-part series. See Part I here.