Running a business involves risk, as any business owner will tell you, and if you’re a small business owner, you’re the one shouldering those risks. It’s hard, especially in the early years of a business when you’re building a reputation, getting leads and gaining a customer base. Your money is hard-earned, and it’s best if your cash flow is consistent.
That's why it's important to have as much control as you can over your finances, and one of the easiest ways to achieve this control is by asking customers to pay upfront.
What does it mean to Pay Upfront?
Asking for a customer to pay upfront means being paid a portion of the job’s cost before starting. In rare cases, upfront payment can cover the entire cost, but in most cases, tradies and businesses ask for an even percentage of the full payment.
We’ll cover why you should ask for payment upfront and tips on how you can do it with minimal customer resistance.
Why ask for upfront payment?
For smaller jobs or jobs that don’t require specific materials, upfront pay usually isn’t necessary and there isn’t a large risk to your business. There are good reasons to ask for pay upfront for all kinds of jobs, but especially within the context of larger projects and complex work.
We’ll cover the main ones below.
Cash Flow
When you’re a small business, every day of pay counts. We cover the topic in depth here, so make sure to have a read about cash flow systems and how to improve them.
By having customers pay upfront, you’ll get a steady stream of income that covers your costs and expenses while you’re getting work done.
As mentioned above, this is less pressing for jobs that take less than a day or have a quick turnaround, but for work that might take days or weeks to plan and do, you and your business will need some money coming in. Asking for pay upfront can cover you and your business’s expenses while you do your work.
Of course, there are some pressing expenses that need to be covered immediately, and the next one is a great reason to ask for pay upfront.
Material Cost
Across the trades, material prices are going up along with everything else, and the last thing you want is to buy a lot of material unique to a job, only for it not to go ahead. Paint, fittings, specialist tools or equipment; whatever your trade is, you’re going to have to organise materials.
You don’t want to buy a bunch of stuff only to have it sit around in your van, truck or storeroom, because a customer suddenly changed their mind.
Upfront pay to cover the cost of materials for a job can protect your business from any losses should the job not go through. Of course, you’ll likely be going after more jobs and customer leads, and at least you won’t have to shoulder the materials losses afterwards.
It can be a real weight off your shoulders, leading to another big benefit of getting pay upfront.
Download our Free eBook: Minimising MaterialWastage
Securing Contracts
A direct deposit into a job means a customer is committed to it. Once someone has put their money into something, they’re very unlikely to cancel the work because they’re now as invested as you are.
Making sure your job has a clear go-ahead requirement with pay upfront and the customer is aware of it means the job is likely to be secure, and you can expect the rest of the pay once the work is completed.
This leads to another important benefit to upfront payments.
Filtering Jobs
As simpler and better as it would be, not all leads and potential customers will work out to be good ones.
Unfortunately, you’re going to get someone dishonest or cheap at some point (probably several,) and the last thing you want is to use your time, money and skills on a job that will only harm your business. It’s time you could’ve spent at another job or following other leads.
By asking for pay upfront, your business can sort out shortchanging customers from the get-go, so you don’t need to chase any bills.
How to ask for Payment Upfront
So you’ve seen some of the reasons to ask for pay upfront and yeah, they’re very good reasons. In most cases, especially with new customers or big jobs, you’ll want to do it.
So how can you ask for pay upfront? We have a few tips to make it easier and smoother for both you and your customers.
Let Customers Know ASAP
When you need to ask for pay upfront, the best thing you can do is make it known from the get-go. No one likes a hidden fee or surprise bill, so explaining to a potential customer that upfront payment will be required before you start the job means you’ll both be on the same page when preparing a quote and invoice.
It’s good to let a customer know in advance that a deposit is required; this might be a short time frame for some jobs, but it’s recommended to let a potential customer know asap. If it’s for a longer-term job, you can let a customer know that you can lock in a start date after the deposit has been made.
Requesting Reasonable Amounts
The amount of pay upfront will depend on the kind of job you’ll be doing, how long it might take and what equipment you need. Your requested upfront payment can be a percentage of the total cost, 100% of material cost or a flat fee for starting the job.
It does depend on what kind of industry you’re in, and as you grow your business you’ll be able to see what kind of system for gathering pay upfront works for you. An example is a bathroom reno; you’ll want the materials covered before you even think about starting, and a deposit on the work hours for you and any employees. On the opposite end, an emergency plumber might just charge a flat fee for the after-hours service and convenience their business provides.
Be Clear AboutExpectations
When asking for pay upfront, be clear about what the deposit will cover, the percentage of the total amount and any extra details.
When you send it along, either physically or digitally, you can add your own message thanking them for their business and what they need to do before you can get started.
This can be easily done in an email; all you need is to sound friendly and list clearly what they need to do.
We’ve got an example for you below to give you an idea of what your email could be like. It’s just a template, but feel free to edit it as you need to.
Example Request For Pay Upfront
Hello [Customer Name],
Thanks for choosing us at [Business Name] for your job.
Attached to this email is the quote and an invoice for [job/job description]. The total is [total fee amount] and the deposit is [deposit amount]. This is to cover the materials and is due by [due date].
We accept [payment type] and [payment type]. After the deposit amount has been paid, we can set a start date for your job.
We appreciate that you’ve chosen our small business for your work!
If you have any questions about the invoice, quote, payments or anything else, feel free to contact us at this email or on [phone number] and we’ll get back to you as soon as we can.
Thanks,
[Your Name]
[Business Name]
Keep YourBusiness Running Smoothly
We hope this overview has helped explain what pay upfront is and why it’s an important part of your business’s cash flow. It goes the other way, too; late payments can affect your business and your flexibility. AroFlo’s guide on late payment fees can help prepare you for that, too.
In order to keep things running smoothly, you need as much control over your business income as possible. If you need more info about this and developing a payment policy for your business, check out AroFlo’s ultimate guide here.
Having a handle on your payments gives your business room to grow, and it makes your life easier too.
