Getting your money upfront when you’re running a business is almost always the best strategy. We’re going to explore the many reasons why.
Cover COGS
Firstly, if you get paid up front, you can use that money to cover the costs of goods sole (COGS). That way, you’re never going to get stuck paying for these without the guarantee of payment from your client. I generally recommend my clients take a deposit at least large enough to cover the COGS.
Don’t Have to Chase Down Money
If you’ve already been paid, you don’t have to worry about whether a client will pay you or having to go through collections. There’s nothing fun about the collections process and it can often be expensive, time-consuming, and occasionally completely fruitless. In my opinion, collections is the worst part of owning your own business. If you can avoid it, you definitely should!
Weeds Out Bad Clients
A small percentage of people out there think they shouldn’t have to pay anything. I don’t know why they think that, but they do. They range from the disappearing act to the bully, to the convoluted excuses. Whatever their reason, they’re people you don’t want to work with.
Fortunately, I’ve found that requiring any amount of down payment weeds out the nonpayers. If someone is willing to pay 10% or more of the money upfront, there’s a vastly greater chance they’ll pay at the end too.
Money Upfront is Better Than Money Later
If you get money upfront, you can invest that money in your business. Getting a paycheck several months earlier means you can invest in marketing, infrastructure, etc. These investments can propel your business forward whereas you’d be waiting to catch up otherwise.
Get Partial Payments
Getting paid in full is very nice, but if you’re looking at projects where a client cannot reasonably pay the full amount upfront, you should at least collect partial payments. Throughout the project, you should continue to collect payments based on milestones or a set timeframe. That ensures you ultimately get paid.
Be Sure To Do The Work!
If you take money upfront, you have to be sure to do the work. There are a couple of laws in North Carolina that make it a crime to accept money and not do the work. They range from misdemeanors to felonies, depending on your intent and the maliciousness of your actions. You can avoid these by simply doing the work as promised.
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