Getting paid up front: The business benefits of requesting an up front payment

You know as well as I do that cash flow in business is vital, and without careful management it can destroy a business.

Many businesses not only struggle to get paid on time, but do not perform fairly simple things to help themselves that are well with in their rights to do so.

An example of this is getting paid upfront before you deliver your product or service.

In fact, a few of the most common questions I get asked are:

  1. Should I be asking for a percentage of payment up front?
  2. Is it possible for me to request payment up front?

The short answer is yes, and this method of payment is becoming more and more popular in business, especially in the business service sector (B2B).

We have also witnessed this change as the Internet has matured. In almost all cases when you buy something online, you pay in advance before you receive your product. So the same is true in the consumer world.

You could argue that people, in most cases, are relatively used to paying for products and services up front.

Times are definitely changing, customer expectations are changing, and technology and the Internet is making things easier for businesses.

As you know by now, I’ve made it my job over the past 20 years to help business people like you to not only get paid on time, but to make sure that you are making it easy to get paid.

Have you ever considered getting paid up front?

If not, I’d like to discuss the advantages of getting paid upfront and the benefits of doing so for your business.

Protecting your most valuable asset

In general, there’s no reason why you shouldn’t consider getting paid upfront, partially or in full, for work that you are going to deliver.

For almost every business to complete an order, provide a service or supply goods, you have to allocate time to that job. When you are in business for yourself time is your most valuable asset, so you should protect it.

Why give your time for free? If you are giving your customer credit terms, i.e. days after invoice date/delivery date to pay, you are putting trust in them that they will make the payment. Why can’t you reverse this concept and have them put their trust in you?

Writing up front payment into your terms of business

With all of my clients who engage me to write their terms of business, we always discuss having a time reservation fee clause. I normally recommend a % of the total at placement of order, this is to reserve the time you need to spend working for that client.

Depending on the product or service you provide, you can decide what % of upfront payment you would like. Here are a few examples:

  • 100% for bespoke orders that couldn’t be resold on
  • 25% for reserving time to draft a preliminary website design
  • 33% to reserve you for a speaking gig booked over 6 months in advance
  • 25% for booking in a workshop
  • 100% up front for a block of hours for IT management

Regardless of what you decide to do, it’s important that you make this clear form the outset so that your new clients understand fully the expectations regarding up front payment.

If you are providing a service, I strongly advise you consider at least charging a small percentage up front.

The business benefits of up front payment

Here’s a quick list of reasons why you should consider getting paid up front:

  • Increased client commitment to the project
  • You have a higher level of financial confidence
  • If the project or appointment gets cancelled, and you can’t rebook your time, you have hopefully covered your expenses
  • You don’t have to wait until the project is completed before money paid into your bank
  • You can manage your resource more effectively
  • Cash flow improves as a result

Will you consider getting paid up front?

So there you have it, food for thought on getting paid up front and the benefits for your business.

Don’t feel that you have to conform to traditional payment terms, especially if you generally invest a significant amount of time up front before getting paid.

As mentioned, paying for goods and services is common place and as far as cash flow and the survival of your business is concerned, you should seriously consider how you can integrate up front payments in to your payment terms

Your turn

  • What challenges do you think you will have with requesting up front payments?
  • How has your business benefited from upfront payments?
  • What tips can you share on making requesting up front payments easier?

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4 Comments

  1. Chris Kay

    I own a cleaning company and we have to allocate an agreed amount of time to clean a property on an agree day and time. Many customer think it’s ok to cancel with a moments notice. What do my staff do now? When I remind them that the contract states that they still have to pay if they don’t give 24 hours notice they are never happy and often change their mind or become agitated. I think up front payment may reduce this awkward situation?

    • rachael

      Hi Chris,
      If your terms state 24hours notice then you are correct to charge them.
      Why not change your terms, so you get some money up front, call it a “Time reservation fee” and then charge after the work has been done. That way you are always billing in advance although the customer won’t see it as that.
      Happy to have a chat if it will help you.

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