Last editedFeb 20223 min read
Negotiating payment terms is an important skill for any freelancer or small business owner. Whether you’re working on a long-term project or providing services to a new client, you might want to think about asking for partial payment upfront. Keep reading to learn more about how upfront payment works, and how to put yourself in the most favourable position for negotiation.
When should you ask for payment upfront?
An upfront payment is when a customer pays for at least part of a service before it’s completed. While requesting upfront payments isn’t applicable to all situations, there are some instances where it might be beneficial both to the business and client.
1. Your cash flow dictates it.
If you’re providing a service, like interior decorating or construction, that requires advance purchase of unique materials, it’s probably a good idea to ask for some payment upfront. This keeps your working capital high enough to meet project demands.
2. You’re working with a new client.
There’s some element of inherent risk when working with a new client. While it’s always a good idea to assess creditworthiness before undertaking high-value jobs, you can also minimise risk by asking for a deposit.
3. You’re working on a long-term project.
Upfront payments can also apply to longer term working relationships. You might need payments in advance to cover expenses and can work out a satisfactory ongoing payment structure. You should always make upfront payment terms clear to avoid any confusion regarding payment expectations.
The benefits of upfront payment terms
Here are just a few reasons to ask for payment upfront:
It covers the cost of overhead so you can focus on the quality of your service.
It improves cash flow so that you don’t have to worry about collecting late payments.
It builds a trustful relationship between you and your clients.
It builds your profile as a professional who has the confidence to ask for the payment you deserve.
The challenges of asking for payment upfront
On the other hand, there’s also a challenge to negotiating upfront payment terms. This is particularly true when sending pitches to clients that might not be familiar with your work. By sending an upfront payment invoice, you’re passing the inherent risk of the unknown onto them. You can put yourself in a better position for negotiation by maintaining a professional presence.
Create a website with an online portfolio (if applicable), client testimonials and reviews. Make sure your social media profiles are up to date, including your LinkedIn profile. This helps give potential clients more confidence in your ability to complete the work – and they may be willing to pay in advance.
How to ask for upfront payment
In addition to creating a more professional online presence, here are a few steps to follow when determining how to ask for upfront payment.
1. Know your own value.
Negotiation requires hard facts and figures. You should know what your services are worth using the latest industry standards.
2. Charge a realistic rate.
One benefit of upfront payment terms from the client’s viewpoint is that they know there won’t be any hidden surprises in the final bill. You can highlight this benefit by providing a comprehensive rate with a set fee for the full project.
3. Create a logical upfront payment system.
Your upfront payment terms should be clear and consistent. It’s rare for a client to pay 100% of the bill in advance, but 25-50% is standard for most industries. Another option is to arrange a series of instalments, with chunks of the final bill paid at each stage of the project’s completion.
4. Go into the project with clear expectations.
In addition to the cost, clearly outline your process, deliverables, and timeframe in a detailed price quote. Paint the full picture so that the client knows exactly what they’re being asked to pay for.
How to create an upfront payment invoice
A professional upfront payment invoice will also boost your negotiating power. One key factor to include is your terms of sale, which should state:
The cost per hour or unit
Date services will be provided
This gives a comprehensive breakdown of the project’s terms and what you’re selling. You should also state whether you’re offering a line of credit, with instalment payments, or asking for a payment in advance with a deposit.
Finally, don’t forget to state your accepted payment methods as part of the invoice. Make it as easy as possible for customers to pay you, and you’ll reduce the headache of collecting late payments down the road.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.