Kill Fees, Deposits and Scope Creep: Payment Terms That Protect You

How much deposit should a freelancer ask for?

An advance of between a quarter and a half of the fee before work begins does two things. It funds the period before your first milestone, and it establishes that the client is willing and able to pay, which is information you want early rather than at the end.

The objection you will hear is that the client's policy is to pay on delivery. That is a real constraint for some larger organisations, and the workable response is a milestone structure that shortens the exposure rather than removing the advance entirely. A client who cannot pay anything until the work is complete is asking you to finance the project.

If you are GST-registered, remember that for services GST is generally payable when you receive an advance, not only when you issue the final invoice. Issue the correct document for the advance and account for it in that period.

As a rough guide, a fee under ₹50,000 can reasonably be taken 50 per cent upfront; larger projects are usually split into three or four milestones, with the first payable on signing.

What is a kill fee, and is it enforceable in India?

A kill fee provides that if the client cancels, you keep the deposit and are paid for work completed to that point. Without it, a client can cancel after most of the work is done and leave the position unclear.

Section 73 of the Indian Contract Act, 1872 allows compensation for loss that naturally arises from a breach. Section 74 deals with a sum named in the contract as payable on breach: the court awards reasonable compensation not exceeding that sum. The Supreme Court has said that proof of actual loss is generally required, but where loss is difficult to prove and the stipulated sum is a genuine pre-estimate, it may be awarded without detailed proof. It will never exceed the stated amount.

The structure that is easiest to defend ties the fee to what was actually delivered: payment for completed milestones plus a proportion of the one in progress. That reflects real value provided rather than a penalty. Where the contract gives the client a right to cancel for convenience and prices that right, the fee is arguably payment for exercising an option rather than damages for breach, but courts look at substance, so keep the amount proportionate to the work.

Kill fee terms at different stages

A worked example in rupees

Take a ₹2,40,000 website project with four milestones of ₹60,000 each: discovery, design, build and launch. The contract provides a deposit of ₹60,000 credited against the first milestone, and a kill fee of all completed milestones plus 50 per cent of the milestone in progress.

The client cancels halfway through the build stage. Discovery and design are complete (₹1,20,000) and half of the build milestone is due (₹30,000). The kill fee is ₹1,50,000. Having already received ₹60,000 as deposit and ₹60,000 for the design milestone, you invoice the remaining ₹30,000. Without the clause, you would be arguing about the value of a half-built website after the relationship has ended.

Sample wording: 'Either party may terminate this Agreement on 7 days' written notice. On termination by the Client other than for the Freelancer's material breach, the Client shall pay for all Milestones completed and 50 per cent of the fee for any Milestone in progress, and the Deposit is non-refundable to that extent. Ownership of completed work passes on such payment.'

Is a deposit refundable if the client cancels?

It depends on what the contract says the deposit is for. A deposit described as an advance against the first milestone is, in principle, a part-payment for that work. If the client cancels before any work is done, it may be hard to justify keeping all of it. A deposit described as a booking fee for time reserved, at a proportionate amount, is on firmer ground.

Courts treat forfeiture of large deposits with caution and look for a link to real loss. The safe course is to describe exactly what the deposit covers and to keep any non-refundable portion modest.

How do you stop scope creep?

Scope creep is rarely a single decision. It is a sequence of small additions, each individually reasonable, that collectively double the work. The defence is not resistance in the moment but a mechanism agreed at the start.

The mechanism is simple: the contract states what is in scope, provides that anything outside it is a change request, and provides that change requests are priced and confirmed in writing before work proceeds. That turns an awkward conversation into a process, and processes are much easier to invoke than opinions.

Sample wording: 'Any work outside the Scope of Work in Schedule 1 is a Change. The Freelancer will provide a written estimate of cost and timing for each Change. No Change will be carried out until the Client approves the estimate in writing, which may be by email. Approved Changes are billed at ₹2,500 per hour unless a fixed price is agreed.'

What should a change request look like?

A change request does not need a form. An email works, provided it is specific. For example: 'Thanks for the request to add a blog section. This is outside the agreed scope (Schedule 1 covers five static pages). Estimate: 12 hours at ₹2,500, total ₹30,000 plus GST, and it adds about one week to the launch date. Please reply "approved" and I will start on Monday.'

Three details make it work: it names the scope document, it gives the cost and the effect on the deadline, and it asks for written approval. If the client declines, you have a record that the extra work was never part of the deal.

How do you handle a client who keeps asking for 'small' changes?

Keep a running log of every request, including the ones you decide to absorb as goodwill. When the small items add up, send the log with a note: 'I have been happy to include these eight small changes at no cost. Further changes will be estimated under the change request clause.' That keeps the relationship warm while resetting the expectation.

A free allowance can also work well: include, for example, up to four hours of minor changes in the fee, with anything beyond that priced. Clients appreciate the flexibility, and you have a clear point at which billing starts.

The full set of payment terms worth having

• Deposit before work begins, or a first milestone payable early.
• Milestone payments through the engagement rather than everything at the end.
• A deemed acceptance window so approval cannot stall indefinitely.
• A kill fee tied to work completed.
• A defined revision cap, with further rounds priced.
• A written change request process for anything outside scope.
• Interest on overdue amounts, and the MSMED Act position if you are Udyam-registered.
• A right to pause work if an invoice is overdue.
• Ownership transferring only on payment in full.

Should your contract charge interest on late payment?

Yes, and it should say so plainly. A clause such as 'Invoices not paid by the due date carry simple interest at 18 per cent a year from the due date until payment' gives you a figure to cite in a reminder. Courts generally look at whether a contractual interest rate is reasonable, so choose a rate you could defend.

If you are registered on Udyam as a micro or small enterprise, the MSMED Act, 2006 goes further. Section 15 caps the agreed payment period at forty-five days from acceptance, and Section 16 provides compound interest at three times the RBI bank rate on late payment, whatever the contract says. Your clause can refer to both: the contractual rate as a floor, and the statutory interest where it applies.

Asking for them

None of these terms is unusual and none is aggressive. They are how professional services engagements are normally structured, and presenting them as your standard terms rather than as a negotiation over trust is the framing that works.

The time to raise them is with the proposal, before the client has mentally committed to a number. Introducing a deposit requirement after the price is agreed reads as a change of terms; including it in the proposal reads as how you work. A one-page 'standard terms' sheet attached to every proposal makes this easy.