How to Ask Clients for Payment Upfront
TL;DR
- Payment in advance is a common practice for qualifying new clients, reducing risk and improving cashflow.
- You might not always get to dictate terms to clients — especially when they’re bigger than you.
- Keep clients happy after they’ve paid you in advance by tracking budget spend and showing them value for money.
Why seek money upfront?
Requesting payment in advance from clients is a common practice for all types and sizes of services businesses.
Here’s a brief list of why the practice is widely adopted:
Qualifying new clients
Upfront payments (for example, 10% of the project value prior to commencement) are a great litmus test of prospective clients who you’ve not worked with before.
If they baulk at the idea of a down payment or need reminding about payment from the start of your working relationship, it’s an early warning signal. A bit like a canary in a coal mine.
By seeking payment in advance, you won’t have to lose hours of billables to find out they are not the sort of client you want to be working with.
Reducing risk
Advance payments also mean that if something does happen with a client once you’ve started working with them (such as them going out of business) you won’t walk away empty handed.
Improving cashflow
Taking payment upfront is also a good way of getting paid sooner.
Depending on how and when you invoice, this might mean you get paid a full billing cycle earlier than if you had invoiced in arrears (after work is completed).
When do upfront payments make sense?
All the time? Some of the time? What scenarios are best for upfront payments?
New, unknown clients
The obvious situation is when you’re about to start work with a new, unknown client — one you’ve not worked with previously and who you’re not 100% sure about.
Even when a new client is known to you, or a referral from a friend or acquaintance, it’s probably still a good idea to incorporate advance payment into your standard ways of working.
You might find out the hard way that you didn’t know them as well as you thought you did.
Late paying clients
Clients who are poor at paying might are also candidates for ongoing payment in advance. This means that you invoice them in advance for work planned.
Exceptions
Of course, there are always exceptions.
When working with large corporations like a Fortune 500 company, the terms of your engagement may be subject to their policies and procedures and not open to much negotiation. You’ll have to weigh this up but the benefits of working with a client of this size usually make putting up with some bureaucracy worthwhile.
Small projects are another potential exception. If it feels like overkill to ask for payment upfront you might opt to just do the work and invoice the client on delivery.
How do you organise it all?
There’s a few things to organise with proposing and securing payment in advance. Here’s a few things you can do:
Communicate how you work and bill
Give clients plenty of warning about your billing practices and how you operate with regard to upfront payments.
Explain why it’s part of how you do business.
Include it in your consulting agreement
Make sure you include relevant terms in your Consulting Agreement and have the client agree to it before you take on the work.
Think about including specifics around:
- How amounts are worked out for upfront payments?
- What are the payment terms?
- What will be delivered for the upfront payment (hours worked, deliverables etc)?
- When does work start?
- How and when will progress and budget information be communicated?
- Does the client get timesheets or any other data?
Track work done and keep the client in the loop
After you’ve invoiced the client and they’ve paid, the onus is back on you to track your time on the project and keep the client up to speed. You’ll want to:
- Let them know what you’re working on and how their money is being spent.
- Show progress so that they feel that they’re getting value for money.
- Create a budget for the work that will come from the advance payment.
- Keep the client up to date on budget spend
- Talk to the client about what happens after the budget is consumed.
Pro Tip: Using time tracking software will make managing advance payments easier as well as all of your other. So, why not start tracking your time with Hourly? It’s free for 30 days.
