If you’ve ever put hours of work into a project, only to spend months and months battling for payment, you can likely see the benefit of requiring a deposit.
By asking for an upfront fee, you’re at least guaranteeing that you’ll be paid for part of the work, even if things don’t work out. Additionally, by paying a fee, they’re committing to working with you.
But demanding a deposit does come with a risk. There are legitimate clients who may feel as though they shouldn’t have to pay anything up front, often because similar service providers they’ve contracted with in the past may not have that policy.
However, you can move forward with confidence, knowing that professionals across all industries require a deposit before they start work. Here are some times when you should be fearless in asking for a deposit.
1. The project will take time.
Depending on the type of business you run, your projects can span weeks, months, and even years. If you’re delaying payment until the end of the project, that means you’ll be working without a dime of payment for that entire time.
Unless you have a full list of clients paying you for work you’ve already completed, this type of delay will make it nearly impossible to keep the lights on and pay any employees you have.
The amount of the deposit is personal preference. Many businesses ask for half up front, then the remainder once the project reaches a clearly defined completion point.
You can also set up milestone payments for larger projects, requiring a percentage on signing, another percentage once you’ve provided templates or examples for the client to sign off on, and so on.
Make sure all of this is clearly outlined in the contract and consider checking with an attorney to ensure your wording makes the contract enforceable if payment is delayed.
2. A deposit provides insurance if the client doesn’t pay.
Perhaps the biggest motivator for requesting an up-front fee is that it reduces your risk. Whether you’re being paid an hourly fee or a lump sum for the entire project, if the agreement is that payment will come when work is finished, there’s no guarantee your client won’t bail on you somewhere along the way. You’ll be left spending time and resources to make sure you get paid.
This risk reduction is not limited to large projects. Even a small task that only takes a few hours can leave you shorthanded in the end. Even 10 or 20 percent can make a difference if you end up not being paid.
3. You need collaboration from the client.
Most projects require client participation for success. Whether you’re designing a logo, programming a new app for a business or performing any other type of service, feedback will help you know whether to keep moving or adjust what you’re doing.
On the front end, detailed direction helps you know what the client wants from the start, which avoids endless rounds of revisions.
A client who is willing to pay up front can also be more likely to participate in the process. You’ll find that when you need help and input, such a client will be all in, since money has been put on the line.
4. A deposit helps provide solid cash flow.
Running a business isn’t cheap. You ‘re likely well aware of the many expenses associated with operating a business, from the space you lease to the employees whose salaries you pay. If your company relies only on end-of-project payments, you’ll soon be out of business.
Upfront payments mean that you can continue to pay your bills in the days, weeks and months that your team is working on that project.
Good clients should understand this, since they too need regular cash flow to survive. By requiring a deposit, you’ll hopefully attract clients who understand what a business faces in the early years of operation. It can also mean that they may be supportive of other aspects of your operations as well.
5. You have project-related costs.
If you’re a growing business, chances are you don’t have a substantial bank account to finance your clients’ projects. This is especially true if you have to subcontract some of the work to a contractor or third-party provider.
You can’t take on the burden of these costs yourself. The upfront deposit can help finance any costs you incur during the course of working on the client’s project.
Be transparent about your process with the client. Make sure they know their deposit is actually what really makes the overall project possible.
This is another way the deposit protects your business against non-paying clients. Let’s say midway through the project the client decides to scrap the whole thing. Without a deposit you’ll be out all the money you spent on subcontractors, supplies or extra equipment. You want that covered ahead of time, preferably with some sort of margin built in for your time and energy. With something like a 50 percent down payment, you can at least call things even if the project needs to be abandoned.
Although some businesses find conversations about money awkward, they don’t have to be. During your initial conversations with your client, simply tell them this. If they want to proceed, you’ll send over a contract. Once the deposit is in place, work can begin. Tell them this is part of your routine operating practices. If you do that, the conversation becomes far less uncomfortable. The client can either pay it, or try to find a provider willing to take that risk.