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Solve your cashflow by getting paid up front

By Ian Vadas Posted Aug. 16, 2016 Reading time: 6 minutes

As freelancers, we’ve all had to chase clients to get paid. You submit an invoice, and your client goes quiet. Thirty days, then sixty days go by. They stop emailing you, and suddenly you can’t get a hold of them.

And you’re freaking out because your bills keep coming in, but you’re not able to pay them. I’ve had this exact scenario play out in my design business more times than I care to admit. To solve this issue, I went looking for a way to avoid late payments.

What I found was that the easiest way to keep from having to chase clients for late payments was never to let that payment be late in the first place, by getting paid up front before starting any of the work.

Easier said than done, right? You’ve probably had a hard time getting a decent size deposit out of your clients, let alone the full amount upfront. But as you’ll see, getting paid in advance is easier than you think it is.

First though, let’s look at the benefits of getting paid in advance.

 

Why you should get paid up front

There are some obvious reasons for getting paid in advance:

  • You can put the money to use right away if needed
  • You don’t have to spend any time haggling with your clients over payment
  • You can rest easy at night knowing that money is in the bank

The first reason is really the most important one. Having cash on hand gives you options and keeps your business afloat. But aside from the cash-flow benefits, the reason I love getting paid up front so much is this:

It gives me peace of mind

  • No more wondering whether or not the client will back out of their end of the bargain and not pay
  • No more wondering whether or not the check is really in the mail
  • No invoices that are three weeks overdue

And really, just less time having to think about the money aspect of freelancing and more time concentrating on the work. Getting paid in advance lifts a huge burden off your shoulders.

Getting paid in advance makes it virtually impossible that the client will cancel the project

But another benefit you probably haven’t thought of is this: Getting paid in advance makes it virtually impossible that the client will cancel the project. And knowing that gives you some level of predictability to your revenue.

And in the unlikely chance the client does cancel, you’ll already be paid, and you can both just move on.

 

How to get paid in advance

(One caveat: You can’t get paid in advance if you’re pricing by the hour. If you haven’t already, consider making the switch to pricing per project.)

To get paid in advance:

  • You don’t have to hard-sell your client
  • You don’t have to have some intense negotiation about it
  • You don’t have to be a “natural” salesman

All you have to do is offer a small discount if they agree to full payment in advance. It’s as simple as offering a 5% to 10% reduction in the fee on your proposal.

It’s this simple…

I include the discount on my proposal just to the right of the stated price, “10% discount if paid in full at the time of signing.” To get the client thinking about it, I’ll often drop a little reminder hint on the client call before sending out the proposal, or after they’ve had a chance to review the proposal and want to go ahead with the project.

I do it over the phone or in email, both work well. When on the phone, I mention it as part of my process, or “next steps.” But it’s really subtle. I don’t oversell it at all. I just state it as an option they can take if they choose to. If not, no worries.

I’ll say something like, “How payment works is that I ask for 50% upfront, and the rest on X date. Or, if you pay in advance, I can reduce the fee by 10%.”

Via email, after they have agreed to work with me, I use this script below:

Subject: Project Contract

Hi Client,
I’ve attached the design contract for you to look over. Please let me know if you have any questions.
If everything looks good with the contract, the next step is to sign and send it back to me.
One quick question: How would you like to pay for this? The default I’ve included in the contract is 50% paid in advance and the balance on delivery of services.
The alternative is full payment in advance for a 10% reduced fee.
Please let me know which you prefer and it will be reflected on the invoice.
Let me know if you have any questions.
Thank you,
Ian

8 out of 10 clients take me up on the reduced fee

After they’ve had some time to think about it, this is usually the response:

Hi Ian,
We will take your final proposal of $X,XXX paid in full to start.

Or, another recent one:

Ian,
I’ve had a chance to review the contract. I’d just like to confirm that if the fee is paid in full at signing, I will receive a 10% discount?
Thanks

Why this works

Imagine a seesaw. On one side we have risk and on the other we have price. If you lower the risk side to the client (for example, in the form of multiple payments over time) the price they pay should goes up (because you are taking on more risk).

Conversely, if the client takes on more risk (by paying 100% advance) it’s fair to lower the price for the added risk they are shouldering. That’s exactly what I do when I offer a lower fee for full payment in advance.

 

But if I discount will I lose out on all that money?

Let’s say there’s an $80,000 job, you are probably saying to yourself, “He’s leaving eight thousand dollars on the table!” But really, what’s happening is that the discount is already baked into the price.

Sure, it’s money that I would have made if I were to break up the payments (and possibly even more money if I offer a payment plan over an extended period of time), but I set my pricing with the reduced fee in mind.

When I put together a proposal, the reduced price is the actual price that I’m targeting in my mind. If the client chooses not to take the reduced fee, and instead we do the typical 50% upfront deposit, I look at it as an added 10% fee for the hassle of breaking up the fee into two payments.

I go into writing the proposal with this mindset. I think of the actual price that I want to get, and then add 10% to that. Of course, I don’t share this with the client (who taught you how to negotiate?!). But again, to them, there are two options on the table. And the choice is theirs to make.

My price is not based on market pricing so whether the price is 10% lower, or 10% higher, it really doesn’t matter since there is no real “right” price for what I’m offering. The client has the option to go somewhere else and buy design work for $50, $500, or $5000. So which price is right? There is only what is “right” for that client.

And if you discard the notion of a “discount” (I prefer to call it a reduced fee) and instead look at it as two different options to choose from, it makes a bit more sense. The way I think of this from the freelancer’s side is as a pre-negotiated reduced price for getting paid in advance.

In any negotiation, when you walk into a room, you are going to have a price in mind that you are targeting. This is the price you are hoping to walk out of that negotiation with. You’re telling yourself, “I don’t want to walk away with less than X amount.” Here, that price is out in the open as a choice for the client to pick on their own and feel happy about getting a price that is 10% cheaper than the alternative.

And when a prospect tries to get you to lower your price, you can always point the client towards that reduced fee and say, “Yes, we can lower the fee by 10% provided you are willing to make the full payment in advance.” That way, you aren’t just giving in to the concessions they are asking for. Instead, you are trading something of value (a reduced fee), for something else that is valuable to you (being paid in advance).

The benefits to your business

Since switching to a pricing model built around getting paid in advance I’ve been able to:

  • better forecast my business income;
  • reinvest in and grow my business;
  • be selective of who I work with and work on the best client projects that come to me;
  • focus on doing the best work for my clients;
  • have the peace of mind that my bills are paid and I’m not going broke;
  • put away several months of income in the bank.

Many of those overdue client invoices do eventually get paid. But is waiting around for four or six weeks extra worth the frustration when they are better alternatives?

Aa