A contractor may include specific details regarding payment terms in their written agreement, such as a flat fee, hourly rate, retainer fee, or late payment charge.
A flat fee is when a payment is made in full and at a certain time. Contractors may choose to charge a flat fee when:
- The project is a routine job that can be completed quickly
- They wish to avoid administrative duties (like logging hours)
- The client is on a strict budget
An hourly rate is when a payment is earned as the work is being completed and is paid periodically. Contractors may choose to charge an hourly rate when:
- The project is expected to be ongoing or long-term
- They wish to be transparent about the value of their work
- There's potential for the project scope to increase or decrease (additional projects may be added or removed)
A predetermined retainer fee is a payment made upfront, upon signing the contract, to guarantee the contractor's commitment to the project (often set within 10 to 50% of the total contract amount).
Late payment charges are additional charges that occur when payments are overdue, often set within 2 to 10% per month on the owed amount.