How to ask for upfront payments for your business

Whether you’re just starting out and need upfront capital to help make your business successful, or you’re fed up with customer invoices going unpaid for unacceptable amounts of time, then you might consider asking for payment upfront.

Asking for money before you’ve completed the work might seem an alien concept, so where do you start? Here, we explore how to approach the subject.

Why ask for upfront payments?

You need reliable cash flow to run your business; that’s why you might consider requesting upfront payment for services. Receiving payment upfront helps make cash flow management more predictable and evenly spaced, allowing you to better manage your business finances and keep operations running smoothly, such as paying bills, staff, purchasing stock, and more.

Late invoice payments are an issue plaguing businesses worldwide, with a report finding that 87% receive invoice payments after the due date. So if you’re in the same boat, it seems asking for upfront payment could be a great way to rebalance the cash flow scales.

5 reasons you might ask for upfront payments

1. If you need funds to purchase initial equipment to complete the project (i.e. a tradesperson who needs to purchase raw materials and construction tools)
2. If you’ve experienced regular late invoice payments
3. If the customer is new and you don’t have that level of trust yet
4. If you take on a particularly large project or order, you might insist on partial payment up front
5. If the project is expected to last a few years, you might consider an upfront payment to keep cash flow healthy

Benefits of upfront payment

There are a few benefits to asking customers to pay upfront:

• Stops you waiting around for payment. Waiting for invoice payments can be agonising, particularly if you depend on the invoice payment to pay bills, etc., on time. Upfront payments can reduce the risk of late or non-payments.
• You’re never out of pocket for the job. If you need to purchase materials before starting a job, you can buy them with confidence knowing you have the available funds.
• Better cash flow. Cash flow is essential to run your business; with a healthy cash flow, you can rest easy knowing your expenses are easily covered each month.

Cons of upfront payment

Just as with any business decision, you should always consider the negatives of asking for upfront cash:

• You might lose customers. Let’s say your customer can’t pay upfront for whatever reason; they might decide to find a new supplier with more flexible payment terms.
• YCan damage customer relationships. Asking for payment like this can also suggest you don’t trust your clients to pay on time.
• Can’t allow for project scope creep. If you invoice a certain amount but the deliverable changes slightly or the client wants to add extras, your initial invoice amount doesn’t cover these changes. Instead, you have to invoice again at the end of the project to include miscellaneous tasks, which can be time-consuming.

How to ask for upfront payments

Where can you start when asking for payment upfront? Here’s some advice you might want to consider:

1. Mention upfront payment terms when you first discuss payment

From the very first mention of payment terms, you should mention your upfront payment terms. Then the customer knows exactly what to expect; the clearer your communication, the better.

2. Offer a few payment options

Understand that not every business might be able to pay for your services upfront, particularly if they’re awaiting payment from customers themselves, or perhaps they have very rigid payment terms. In these circumstances, it’s essential to demonstrate a willingness to be flexible (if you want to work with them).

Other payment terms might include paying in instalments, with the first payment coming before starting the work, the second payment after delivering part of the project and the final invoice once you complete everything.

3. Automate your invoicing

By automating your invoicing, you don’t have to worry about manually chasing late invoice payments, which can put strain on customer relationships. Instead, you can rely on the tech to send automatic payment reminders, giving them plenty of notice that their invoice is due, and gently reminding them once it’s overdue.

4. Consider an incentive

The best way to transition existing customers and build great relationships with new customers is to offer a financial incentive. For example, if your customer pays in advance, you can discount their invoice price by X%.

5. Share deliverables on time

The customer is keeping their end of the bargain by paying you upfront, and in doing so, they’re placing a degree of trust in you as a new supplier. So, to continue building that trust, deliver your products or services on time. If you don’t fulfil your part of the agreement, you can quickly lose that trust, which can mean the customer won’t return.

Should I ask for upfront payment?

Whether you should ask a customer for upfront payment really depends on your relationship with that customer and the reason you want upfront payments. It’s a good idea to implement these new payment terms with new customers and perhaps consider leaving your older customers on their original payment terms initially.

If you’re having cash flow problems and you can’t secure upfront customer payment, you can consider a cash flow business loan or a product like invoice finance, where you can access 95% of your unpaid invoice immediately.

Compare business loan options for your business here.