Latest / Freelance Careers with Fexingo: Independent Work, Consulting, and Self-Employment / How Freelancers Can Use a Cancellation Clause to Protect Income
Transcript
- Lucas: Let me ask you something, Luna — have you ever had a client cancel a project after you'd already done a week of work? Luna: Oh, absolutely. Early in my freelance days, I had a branding client pull out after I'd already delivered the mood boards and the first round of logo concepts. I got paid exactly zero dollars for that. Lucas: That's brutal, and it's incredibly common. I talked to a freelance web developer last week — let's call him Mark. He landed a $15,000 project to rebuild an e-commerce site. He spent about 40 hours on discovery, wireframes, and a prototype. Then the client's CEO decided they wanted to go in a different direction. Mark had no cancellation clause in his contract. He got nothing. Luna: Forty hours of work, gone. That's a huge hit for a freelancer. Lucas: Exactly. And the thing is, a cancellation clause is one of the simplest additions you can make to a contract. It just says: if the client terminates the project before completion, they owe you a certain percentage of the remaining fee, or a flat kill fee, depending on how far along you are. Luna: Right. It's not about being adversarial. It's about acknowledging that your time has value, even if the project doesn't reach the finish line. Lucas: Precisely. And I want to be clear: a cancellation clause is different from a termination for cause clause. We're talking about a client who simply changes their mind, not someone who's breaching the contract. It's a no-fault cancellation. Luna: So what does a good cancellation clause look like? Can you give us a sample? Lucas: Sure. A solid clause has three components: a notice period, a kill fee schedule, and a sunset provision. The notice period is usually 30 days — that gives you time to wind down and reassign resources. The kill fee schedule ties the fee to the project stage. For example, if the client cancels before the first deliverable, maybe they owe 25 percent of the total. If they cancel after you've delivered a major milestone, that could jump to 50 or 75 percent. Luna: And the sunset provision? Lucas: That's a deadline for the kill fee. It says: if the client cancels, they have, say, 90 days to pay the kill fee. After that, the clause expires. It prevents indefinite liability on both sides. Luna: That makes sense. How do you bring this up without making the client think you're expecting them to bail? Lucas: The framing is everything. I tell clients: 'This clause protects both of us. It ensures that if either of us needs to walk away, we do it in a way that's fair and orderly.' I've never had a client push back on that. In fact, most of them appreciate the professionalism. Luna: I've found that too. When I include a cancellation clause in my proposals, it actually signals that I've thought through the engagement seriously. It's a green flag, not a red one. Lucas: Let's walk through a concrete example. Say you're a freelance content strategist, and you charge a flat $8,000 for a project that takes about six weeks. Your clause might say: if the client cancels within the first two weeks, before any major deliverables, they owe 30 percent — that's $2,400. That covers the research and planning you've already done. If they cancel after you've delivered the strategy document, they owe 60 percent — $4,800. Luna: And those numbers are usually enough to make the client think twice before cancelling on a whim. Lucas: Exactly. But even if they do cancel, you're not left empty-handed. That $2,400 might be the difference between a rough month and a decent one. Luna: So what about Mark, the web developer? If he'd had a cancellation clause, what would he have gotten? Lucas: If his clause said 25 percent kill fee before the first deliverable, he'd have gotten $3,750. That's not the full $15,000, but it's a lot better than zero. And it respects the work he already did. Luna: That's a tangible difference. And I think some freelancers worry that if they ask for a kill fee, the client will just walk away. But the data doesn't support that. Most clients expect a professional contract. Lucas: In my experience, the clients who balk at a reasonable cancellation clause are often the ones who are likely to cancel. So in a way, it's a filter. If a client can't agree to a basic protection for your time, that's a red flag. Luna: That's a really good point. It weeds out the tire-kickers upfront. Lucas: Now, there's one more nuance I want to mention: the cancellation clause should also address what happens to work the client has already paid for. For example, if they've paid a deposit and they cancel, do they get a refund? I usually say no — the deposit is non-refundable because it covers your initial time and locks in their commitment. Luna: And you can tie that into a milestone-based payment schedule. If you're getting paid in tranches, each tranche is essentially a non-refundable payment for the work delivered so far. Lucas: Exactly. So the cancellation clause works hand in hand with your payment schedule. If you have a 50 percent upfront payment, and the client cancels after you've delivered the first milestone, you've already been paid for that work. The clause then covers the remaining portion. Luna: I think a lot of freelancers avoid these clauses because they don't want to sound like lawyers. But you don't need legalese. You can write it in plain English. Lucas: Absolutely. Simple language is often more enforceable anyway. Something like: 'If Client cancels this project before completion, Client agrees to pay a cancellation fee equal to percent of the total project fee. The fee will be due within 30 days of the cancellation notice.' That's it. Luna: And you can always adjust the percentage based on the project size and your relationship with the client. For a long-term retainer, a 30-day notice period with no kill fee might be appropriate. For a fixed-price project, the kill fee makes more sense. Lucas: Right. The key is having something in writing. Without it, you're at the mercy of the client's goodwill. And goodwill doesn't pay the rent. Luna: Before we move on, I want to mention something that's been on my mind. We talk a lot on this show about practical strategies to protect your income and build a sustainable freelance business. And the reason we can do that is because of listeners like you who support the show. Lucas: Yeah, it really does make a difference. A couple of dollars a month helps keep the show ad-free and independent. If you've gotten something out of these episodes — maybe you've used a cancellation clause yourself, or you're thinking about adding one — consider tossing a few bucks our way at buy me a coffee dot com slash fexingo. Luna: It genuinely helps us keep doing this. And we appreciate every bit of support. Lucas: Alright, back to the clause. Let's talk about how to handle pushback. Say a client reads your clause and says, 'Why do you need this? I'm not going to cancel.' How do you respond? Luna: I usually say something like: 'I'm sure you won't, and I hope you don't. But I include this in every contract as a standard practice. It's not about you personally — it's about making sure we both have a clear understanding of what happens in any scenario.' Lucas: That's perfect. It's professional, not personal. And if they still resist, you can offer a compromise — maybe a shorter notice period or a lower kill fee. But stand your ground on having something. Luna: Another technique is to frame it as a mutual clause. You can add a similar provision for the freelancer — if you need to cancel for some reason, the client gets a discount or a refund. That makes it feel balanced. Lucas: That's a great idea. It shows you're not just protecting yourself, you're thinking about fairness. I've seen some freelancers use a 'mutual cancellation clause' where both sides have the same notice period and kill fee. Luna: It's a trust-building move. Lucas: Let's talk about enforceability. A cancellation clause is a contract term, so it's enforceable as long as it's not unconscionable — like a 100 percent kill fee on day one. Courts generally uphold these clauses if they're reasonable and clearly communicated. Luna: And having a signed contract is key. If the client never signed, the clause is just a suggestion. Lucas: Right. So always get the signature before you start work. Digital signatures are fine. Luna: One last thing: what about projects that are paid hourly? Does a cancellation clause apply differently? Lucas: For hourly projects, the cancellation clause is simpler. You just say: if the client cancels, you get paid for all hours worked up to the cancellation date. No kill fee needed — you're just billing for time already spent. But you should still include a notice period to avoid losing a slot in your schedule. Luna: That makes sense. So the principle is the same: protect the value you've already created. Lucas: Exactly. Whether it's hours or deliverables, your time and expertise have value. A cancellation clause is one of the simplest ways to honour that value in the contract. Luna: I think a lot of freelancers will hear this and realize they've been leaving money on the table. It's such a small change with a big potential upside. Lucas: It really is. So if you don't have a cancellation clause in your contract, I'd encourage you to add one this week. Start with a simple version, test it with a client, and refine it over time. Luna: And if you've already got one, maybe revisit the percentages. Are they still fair given your current rates? Lucas: Great question to leave on. Next episode, we'll talk about something a little different: how to use a retainer agreement to smooth out your cash flow even when projects are irregular. Luna: Looking forward to it. Until then, keep those contracts tight.