One of the most frustrating tasks is to get clients to pay you for work you’ve completed.
Customers tend to pay slowly. And some just default. But is there a way to avoid this mess? Well, we think there are at least three ways to avoid it. Let’s find out how.
A flawless system for getting paid on time doesn’t exist. But if we look at how certain industries deal with it, you may not have to chase late payments again.
-The consulting company method
-The 100% payment upfront method
-A downpayment in advance method
Let’s take a look at all three and see which one works best for you.
1- The consulting company method
When my last company needed someone to help us fix a few operational issues, we hired a specialist consultant who followed a slab system payment plan.
Every stage of the work had a pre-payment clause attached.
Discovery: Pre-payment 1
Delivery: Pre-payment 2
Analysis: Payment 3
On and on it went through each phase. If we wanted the next phase to proceed we had to make the payment to keep our consultant “motivated”. This type of payment works well for both the client and the supplier. Firstly, it breaks down each phase into smaller chunks, making it easier to manage finances on both sides. It also ensures that both parties are equally motivated to complete the work.
Service providers find this system excellent for moving ahead systematically.
However, what happens if one of the parties decides to walk away? Let’s say you’re working on a construction project and things are going well, before the client runs into some difficulty. Perhaps she’s had a personal problem and can’t pay for the next phase.
Now you’re stuck. You can’t proceed with the job. But if you’ve structured your payment plan right, you’ll already have the money from the work you’ve completed.
This isn’t a foolproof system. A lot depends on how you’ve structured your payment plan. Each section doesn’t (and perhaps shouldn’t) be created equal. You don’t want to end up putting a lot of effort into work and end up earning nothing from it.
This is why it’s so important to break each phase into appropriately priced segments.
If the first phase requires 50% of the work, then that’s the first payment the client must pay before you start work. If the second phase takes just 5%, then you ask the client to pay accordingly, and so on.
This approach means you need to do the groundwork upfront. However you decide to break up the phases, it’s important you get it right.
2- The 100% payment upfront method
Before starting my first business I managed a cafe.
The customers walked in the door, took a look at the menu on a board by the counter, and once they’d ordered their food, they paid for it. Right there. No bill. No waiting around for a waiter to take their order. Pure simplicity. I loved it.
The time we saved not writing bills, taking the bills over to the table, collecting the card machine, taking it back to the table and taking the customers payment was used to improve the business. And, importantly, to save money.
That’s great, for a cafe, but will it work for your business?
It depends on a couple of factors. Your confidence and the demand for your offering. If you offer a niche service, something other companies cannot deliver on, then you have leverage to ask for the money upfront.
You’ll often find this with personality-driven training companies. If the buyer wants to be trained by, say, Elon Musk on how to build a space enterprise, then the only person she’s going to employ is Musk. No matter the price. No matter how many other people are vying for the business.
So what’s unique about your product or service? Take some time to work that out and use it to create leverage amongst your customer base.
If there’s a demand for it, you’ll most likely get away with asking for 100% upfront. But that’s probably not enough to do it with all clients. The second point, is confidence.
You should always confidently charge upfront
This isn’t for the faint of heart. And takes some bravado. But if you truly believe in the value that you deliver then this shouldn't be too difficult.
You might not always be 100% sure that the client will be cooperative with 100% upfront but it doesn’t hurt to ask anyway. You might have to do a little back and forth. If you can remove the risk of them paying upfront, then they should agree.
Asking puts you in a great position
Even if you don't get paid 100% in advance, it sets you up nicely for at least 50%. And that's the next possible option to get paid in advance.
3- The downpayment method
There’s a big advantage to getting 50% in advance.
Sure, it would be nice to get paid all in one go. However, there is a psychological advantage to getting 50% upfront. The 50% you’ve not been paid yet is a form of motivation.
It’s often hard to motivate yourself when you’ve been paid upfront. But that remaining 50% will push you to get the job done properly.
It even motivates the client
Once the client puts their hand in their pocket to pay you half the project cost upfront, they’re making a commitment to themselves to get this project done right. They have to do their part too. This should alleviate the pain from clients who don’t give you the information you need or create needless delays.
The worst possible way to get paid is after the completion. But, unfortunately, many clients demand that. And even worse, it’s common for them to insist net-30/60 or even 90 days payment terms.
That’s why we exist. Firstly, we want you to get paid on time. Our mission is to help SMEs be in better control. But if the client demands long payment terms, we can help.
How you get payments is up to you. But you can’t force the client into payment terms they’re not comfortable with. If a competitor agrees to their payment terms and you don’t, there is a chance that you could lose the business.
But it doesn’t hurt to ask. You might be surprised at what they agree to.