The short answer
With a corporate client the risk is that they will not pay you. With a startup the risk is that they will cease to exist. Those need different protections, and almost everything written about collecting invoices assumes the first.
Take a deposit, always, and treat it as the minimum you will be paid.
Bill in short stages so the amount at risk never exceeds what you can absorb.
Treat a funding round as a hope rather than a payment date.
Watch the signals that matter for this client type, which are not the usual ones.
Think very carefully before accepting equity instead of money.
None of this is a reason to avoid startup work. It is often the most interesting work available to a small studio, with the shortest decision chain and the fewest approval layers. The protections just go in a different place.
The risk is existence, not willingness
A startup founder who owes you money usually wants to pay you, personally and immediately. There is no procurement policy to hide behind, no payment run to blame and no accounts payable queue absorbing the responsibility. If the invoice is unpaid, the reason is almost always that the money is not there.
That inverts most collection technique. Escalating past your contact does not work when your contact is the chief executive. Pointing at a process does not work when there is no process. A demand letter to a 6-person company lands on the desk of the person who already knows and is already worried.
So the work moves earlier, into how the engagement is structured, and the question is less about persuasion and more about limiting what you can lose.
The signals that matter
The usual checks tell you little here. A 2-year-old company has no payment record, no credit file worth reading and no published accounts of any use, so the standard pre-signing checks come back mostly empty.
Signal | What it suggests | What to do |
|---|---|---|
Recently funded, announced | Cash now, pressure later | Invoice promptly, bank the deposit |
Raising, not yet closed | Paying you from hope | Deposit and short stages only |
Revenue-generating | A real business, whatever its age | Treat it like any small client |
Paying you from a founder's account | No corporate banking, or no money | Ask directly before continuing |
Headcount growing fast | Burn rising, runway shortening | Keep exposure small and current |
The 4th row is worth acting on rather than noting. A payment arriving from a personal account, or an invoice addressed to a person rather than an entity, usually means something structural is unresolved, and it is a reasonable thing to ask about plainly.
After the raise is not a date
The most common promise in this part of the market is that the invoice will be settled when the round closes. It is offered sincerely and it is not a payment date; it is a hope with a calendar attached.
Rounds slip, shrink and collapse, and the founder telling you about it has strong incentives to sound more certain than they are. Treat it as information rather than as a commitment:
Subject: Invoice #118 — a workable plan either way
Hi [Name],
Thanks for the update on the round, and good luck with it.
On invoice #118, I'd rather not have it depend on something neither of us controls. Could we do this instead: [amount] now, which I know is affordable from current runway, and the balance on [date] regardless of where the raise has got to?
If the timing is genuinely difficult, tell me and we'll work out something that is. I'd just rather agree it now than leave it open.
Thanks,
[Name]
Asking for part now does 2 things. It gets you something from money that currently exists, and it tells you a great deal about the real position based on whether a small amount can be paid this week.
Structure beats collection
Everything that protects you here is agreed before the work starts:
A deposit, without exception. For a startup client this is not a cash flow improvement, it is the floor on your loss. How to ask covers the wording.
Short stages. Fortnightly or monthly rather than on completion, so the unpaid balance is never large, as in milestone billing.
A ceiling. Decide the most you will let them owe at any moment, and treat crossing it as a stop rather than a worry.
Stop quickly. A missed stage payment from a startup is a stronger signal than the same miss from a corporate client, because there is no process that could have swallowed it.
The underlying rule is that your exposure should stay inside what you could write off without it mattering. That is a different test from whether you trust the founder, and both can be true at once.
The equity question
Sooner or later a startup will offer shares instead of cash, or shares alongside a reduced fee. It is flattering, occasionally lucrative, and more complicated than it is usually presented.
The part most often omitted is tax. The IRS sets out in Publication 525 that property received for services is included in income at its fair market value, with the timing turning on whether the property is substantially vested: substantially vested property is included when received, while property subject to a substantial risk of forfeiture is deferred until the restrictions lapse, with an election available to accelerate.
So you may owe tax, in cash, on shares you cannot sell, valued at a number somebody else decided. For an agency with ordinary cash flow that is a real risk rather than a theoretical one, and the position differs by country and by how the shares are structured. Take proper advice before agreeing anything, rather than after.
A practical middle position: take cash for the work and treat any equity as a separate, optional investment decision made with its own money and its own advice. Where you do accept shares, do it on top of a fee that covers your costs rather than instead of one.
If they fail
Your position is the same as any unsecured supplier, which is near the back of the queue, and the steps are in what to do when a client goes insolvent.
1 point deserves repeating here because it bites hardest with this client type. Under 11 U.S.C. section 547, a trustee can reclaim payments made in the 90 days before a bankruptcy filing where they gave a creditor more than a liquidation would have. A startup that scrambles to clear your invoice shortly before failing may have handed you money that is later asked for back.
2 things soften it. The ordinary course of business defence protects payments made on normal terms in the normal pattern, and section 547(c)(9) protects transfers where the aggregate value is less than $5,000 in cases where the debts are primarily non-consumer, which covers a good deal of agency work. Neither is automatic, and a demand to repay is a lawyer question.
When it is worth it
Often. Startup work is frequently the best work on offer for a small studio: ambitious, fast, decided by 1 person, and genuinely appreciated. Several of the best long-term agency relationships start with a company that had almost no money.
The judgment is about proportion rather than principle. A startup client sized so that its failure would be annoying is a good client. One sized so that its failure would be serious is a bet, and the shape of that bet is the subject of concentration risk whatever the client's age.
FAQ
Should I work with startup clients?
Yes, with the protections moved earlier. Take a deposit, bill in short stages, set a ceiling on what they can owe, and size the engagement so that losing it would be annoying rather than serious.
A startup says they will pay after their funding round. What do I do?
Treat it as information rather than a commitment, since rounds slip and shrink. Ask for part now from money that exists and the balance on a fixed date regardless of the raise, which also tells you a lot about the real position.
Should I accept equity instead of fees?
Be careful. Property received for services is generally taxable at fair market value, so you can owe cash tax on shares you cannot sell. Take cash for the work and treat equity as a separate investment decision, ideally on top of a fee rather than instead of one.
How do I check whether a startup can pay?
The usual records are mostly empty, so look at other signals: whether a round has actually closed, whether there is revenue, whether payments come from a company account, and how fast headcount is growing relative to income.
Can a startup take back money it already paid me?
If it enters bankruptcy, a trustee may be able to reclaim payments from the preceding 90 days. The ordinary course defence and a floor for smaller transfers often help, but a demand to repay needs legal advice rather than a reply.
What is the single most useful protection?
The deposit, because with a startup it is the floor on your loss rather than a cash flow nicety. Short billing stages are a close second for the same reason.
Not legal, tax or investment advice. The treatment of equity received for services, and of payments made before an insolvency, depends on your country, your entity and the structure of the arrangement. Take advice before agreeing to either.