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How To Negotiate Upfront Payments For New Service Contracts
December 21, 2019
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How To Negotiate Upfront Payments For New Service Contracts

Let’s be honest. The ebb and flow of finances is one of the biggest hurdles of being a small business owner. It can be a real pain to track down late payments and juggle bills while you wait for your customers or clients to pay you. If you can relate to this, it’s time to consider asking for upfront payments. 

So, what exactly is an upfront payment? Good question! It’s a type of transaction in which a customer or client pays for part or all of a service before you complete it. While it can be nerve racking to negotiate your first upfront payment, it’ll become easier in time. 

Keep reading to learn how to successfully negotiate upfront payments from your customers or clients. 

Benefits of Upfront Payment Terms

There are a number of noteworthy benefits of upfront payment terms including:

  • Builds Trust: An upfront payment can build trust between you and your client or customer. It shows you as a service provider that the client or customer is serious about your work. It’s a guarantee that upon completion, you’ll receive the full payment you deserve. 
  • Improves Cash Flow: Cash flow can be a huge issue, especially if your services translate into many long-term projects. With upfront payments, you won’t have to worry about late payments or the stress of not getting paid at all.
  • Covers Out-of-Pocket Expenses: Most projects come with expenses like materials, supplies, software, and professional support. If you receive partial or full payment upfront, you can easily pay for these expenses. 
  • Keeps Clients and Customers Engaged: If a client or customer hasn’t paid you a cent for your service, they may not be as serious about your project. This means they’ll be less likely to make time for you or provide you with the information you need. If they pay upfront, on the other hand, they’re more likely to be engaged and focused on your work.
  • Shows Confidence: By asking for upfront payment, you position yourself as a confident professional who is in touch with industry norms. 

Tactics For Negotiating Upfront Payments

If you’re new to negotiating upfront payments, rest assured that it’s not that difficult. Believe it or not, most clients or customers will have no problem paying you upfront. Once you negotiate your first few upfront payments, the process will come naturally to you. Remember, practice makes perfect. 

Ensure To Present Yourself Professionally

The reality is that we live in an information age. This means that a client or customer is more than likely to do their homework and research you in advance. For this reason, it’s your responsibility to ensure a professional online presence. 

Remove any inappropriate photos or emotional outbursts from your social media pages. Make sure your website is professional and you have plenty of positive reviews on your own website as well as third-party websites like Google, TrustPilot, Yelp, and Angie’s List. 

Also, ensure your LinkedIn profile clearly conveys what you do and why a customer or client should hire you. It should include a professional photo and recommendations. When you communicate with a potential customer or client via phone or email, it’s your job to reinforce your professionalism. 

Respond promptly and clearly explain how they can benefit from your services. Your goal should be to show them why they can count on you. A professional presentation may be all it takes to convince them to pay upfront.

Realize Your Worth, And The Worth Of Your Product Or Service

Most clients or customers are perfectly fine with paying service providers upfront. Not only does this show them that you’re a true professional, it also provides them with an upfront cost. They would much rather know the cost upfront and take care of it than receive an invoice that’s far higher than they anticipated. 

Therefore, it’s essential to realize your worth as well as the worth of your product or service offering. After all, you want to get paid fairly and avoid missing out on jobs because you’re too expensive. Do some research and find out what your competitors charge. You can do this by visiting competitor websites and calling around. Attending industry networking event can help as well. 

Also, consider your business budget. Ask yourself how much money you need to bring in each month to cover it. You don’t want to charge so little that you can’t even afford your budget. On the other hand, you don’t want to charge so much that potential customers or clients turn to your competitors instead. It’s all about finding a happy medium. 

Determine A Value Ahead of Time

There’s nothing worse than a prospective customer or client asking you how much you charge and you not knowing. This makes you appear unprofessional and inexperienced. Once you know the details of a prospective client or customer’s project, determine a value as soon as possible.

Sit down and really think about how much you want to charge them. What would they pay if they went to a competitor? Would your rate cover your expenses and time adequately? Can it allow you to meet (or even exceed) your business goals?

After you nail down a price, create a written proposal. Your proposal should include your information, the prospective client or customer’s information, a summary of the project, and price breakdown. At the end of your proposal, include your invoice payment terms. 

State whether you’d like partial or full payment upfront. Then, share which payment methods you accept and when payment would be due. Email the proposal to the prospective client or customer and note that you’ll gladly answer any questions they may have about it.

Thoughtfully Negotiate Payment Rates

The key to getting paid upfront is thoughtful negotiation, which revolves around flexibility. You may want a customer or client to pay for your service 100% upfront. They may not be comfortable with this, especially if they’ve never worked with you before or you’re new to the industry.

In this case, you may have to settle for 50% upfront and 50% upon completion. You should also be flexible with the types of payment you receive. Some clients or customers like making online payments. You can tell them you accept payments from PayPal, Zelle, or other platforms. 

Other customers or clients are more old fashioned. They don’t feel comfortable entering their financial information online. Inform these clients that you’re more than happy to accept a check in the mail if they prefer.

Also, give prospective customers or clients time to make their upfront payments. Don’t expect them to pay the day they agree to your proposal. You may want to give them a few weeks to make their payment. 

Of course, this time frame may be shortened if there’s a deadline that must be met. It’s also a good idea to set up a recurring payment system that works well for customers or clients who hire you for ongoing work. 

Upfront Payment Contract Described

Provide Reassurances And Milestones For Long-Term Work

Even if you have a great online presence and present yourself professionally, your clients and customers will want reassurance. Make it clear to them that you will do a good job and won’t take their money and run.

There are a few ways you can relieve some uncertainty. First and foremost, guarantee that you’ll complete their project on a date you both agree to. Put this deadline in your proposal so they have it in written form.

You can also offer a money back guarantee or create a refund policy. This way prospective clients or customers will know they have nothing to lose. In addition, communicate with them throughout the entire project.

Inform them of milestones and make sure they always know what’s going on with their project. Lastly, make every effort to maintain a professional relationship. Whenever you call them, speak clearly. Any time you send an email, read it over a few times and correct any spelling or grammar mistakes. 

Our Final Word

If you’re a small business owner, negotiating upfront payments can make a positive difference in your business and life. With upfront payments, you can protect yourself emotionally and financially. 

You won’t have to worry about clients or customers disappearing without paying. Instead, you’ll be able to build trust, improve cash flow, keep clients engaged, and set yourself up for success. 

At Fora Financial, we strive to help small business owners succeed. Sign up for our newsletter today for more tips on new service contracts and other important small business topics. 

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Frequently Asked Questions

What is an upfront payment?

An upfront payment is a type of transaction in which a customer or client pays for part or all of a service before you complete it.

Will customers or clients be willing to pay upfront?

Contrary to popular belief, many customers or clients will have no problem paying for a service upfront. In fact, some prefer it because it builds trust and helps them avoid unwanted financial surprises.

What are the benefits of negotiating upfront payments?

When you negotiate upfront payments, you build trust, improve cash flow, cover out-of-pocket expenses, show confidence, and keep clients or customers engaged.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].