Cash flow represents the health of most businesses.
The more cash you have, the more you can do. And it also provides a nice safety net.
In good times and bad, though, cash flow can get into some crazy situations. Even growth can lead to cash flow problems. As you grow, you need to spend money for operations and other investments. And if you’re waiting to collect payment from clients you’re going to be hurting for cash.
So getting payment upfront can be a key to keeping the cash flow, and the business, healthy.
Here are a few tips for getting advance payment for your business…
1. Ask For It
It’s stupid. But often the barrier to many things in business, especially small business, is ourselves. The owners and managers. Maybe we had a little hesitation early in proceedings. We really wanted the business and did whatever it took to get the “yes”. Including postponing payment or not asking for payment upfront.
But if you’re in a comfortable place, or even if you’re not, tell new clients that payment is required upfront. Start there. See how it goes. It will go fine. Then move on to asking existing clients. Eventually, sooner than you think, it will seem like it was always this way and your cashflow will be in a good place.
2. Offer Early Discounts
Many companies are doing this today. They want the long-term commitment so they offer annual plans, upfront, for their products and services. They still offer the shorter commitments, usually monthly, but they really push for the long-term commitments.
You have to make it worth the while of your customer. Although, some customers prefer to pay upfront and will pay nearly full price upfront. Many, though, will want something in return. Anywhere from 10% to even 50% off. You can work your pricing to make it worth your while too, but really make sure the incentive is there for your customers.
3. Ask If They Ever Advance Payment
Let’s say the situation is more unique and your industry doesn’t do advance payments or your clients insists on paying after. Keep things cordial, but start asking questions about the company’s policy. See if they have ever paid for something in advance. Get the details. See if you can rework your proposal to fit their needs in a way that allows for advance payment. Even if it’s just a partial advance payment.
4. Offer Immediate Value
Another enticement you can offer is some immediate value. It will vary by service, but the sooner you can offer value in any situation, the better. Obviously it’s good for any situation, but it’s great for advance payment requests too. They may pay right away, but they may be leery about it. See some early returns will ease their early tensions and they’ll be likely hooked for a long time.
5. Watch The Refund Situation
One note, big note, with changing to advance payment is that your refund requests will increase. Right now, if you’re accepting payment after service, you don’t have to do many refunds if you even have any at all. You just withdraw the invoice if a customer isn’t happy and you grant a refund.
Getting payment upfront is great. It’s a good thing to make happen. But you will have to watch for refunds. Start tracking it immediately. Keep a little cash on hand specifically for refunds. Then over time you’ll see what percentage of sales or profits you’ll have to keep on hand for the average number of refunds that you’ll see.
It’s not a huge deal, but it is something to plan for.
Conclusion
Advance payment can open some big doors for small businesses. You can start many small businesses by getting payment in advance, building your team and providing the service. You don’t even need the startup funding in those instances. But it’s good for a lot of reasons. You can avoid nonpayments or late payments and all those headaches. If you’re considering advance payments, do it. And use these tips to help ease the transition.