This is an answer to a question I was posed on Quora.
I’d avoid collecting money entirely (i.e., 100%) on the backend except for the shortest and smallest engagements.
Here’s one anecdotal story: I once managed a business advisory practice as part of a large, international and diversified products and services firm. To get this practice off the ground we subcontracted to a number of consulting firms to fill in for delivery gaps we had. And some of these firms didn’t collect their fees that regularly since we were a massive firm with worldwide recognition and history. We always paid our bills, no problem. However as additional context below the surface, the company I worked for apparently had a variety of issues, in particular high levels of debt caused by years of merger and acquisition activity. The CEO had hired one of the big MBB firms are part of efforts to turn our company around.
One day the CEO announces that the company would proactively declare Chapter 11 bankruptcy even though we had cash and lots of assets. What did that mean? The consulting companies that I used as subcontractors could not be paid. The telephone calls I had to make hurt to make. At the time that damaged my reputation even though the whole situation was something that occurred at a much higher level. I do wonder what happened to the fees that were owed to the MBB firm that was helping at the strategic level. Were these paid off before the bankruptcy? Or did they get in line like I had to waiting for my severance pay to make it through the the courts? I have a bad taste in my mouth after that whole experience, especially since the CEO got a parachute whereas suppliers and trench workers comparatively did not.
There are many other examples that I could come up with. However, consulting firms have cash flow considerations to make. And they take some risks, so it is quite fair to pay consultants up-front or along the way in a timely manner. Things can happen that slow things up. For example, if you are doing business internationally, the client may need to do tedious checks on corruption and money laundering that can take time for larger deals but they may be able to release some money up-front to cover the consulting firm services being floated. Or other (probably rare) things can cause complete train wrecks such as working with a distressed firm that might declare bankruptcy out of the blue.
So as a consultant perhaps I have some baggage, but I’d avoid opting for the “complete payment after you’re done” option unless you acknowledge, however remote, the risks, uncertainty, and potential unknown unknowns that there are.
