We all have tough times in business financially, and the worst thing we can do…
Asking for a Deposit Doesn’t Have to Be an Awkward Conversation
I’m always surprised by the number of businesses who don’t collect deposits from clients before starting a project.
And the reason I’m given is, “I feel uncomfortable asking because they’ll think I don’t trust them.” If this sounds familiar, let me share with you the secret to easily collecting client deposits which helps them (and your cash flow).
Many business owners, particularly those in regional areas, choose not to charge clients a deposit because they don’t want to jeopardise long-standing community relationships. And there’s certainly validity in this approach.
But from a business perspective, there are 3 key reasons why you should collect a deposit:
1. Cash flow.
It certainly helps any business’ cash flow to have money consistently coming into the bank account rather than huge chunks of peaks and troughs. It also helps clients manage their budgets to pay lots of little payments at key stages within a project rather than one or two huge payments.
2. Risk management.
Collecting a deposit is a simple and effective test to see if this client is going to turn into a bad debt and difficult client. If you have trouble gaining the deposit, this is usually a good warning sign of a pattern of late or no payments in the future.
3. Workload management.
Until a client pays the deposit, no work should be undertaken. Just because the contract is signed, doesn’t mean they will ‘show you the money’. So, the longer the client takes to pay, the longer they stay in a holding pattern which means they go further and further down the queue.
So how do you sell it to the client?
Now, of course, you don’t want to inform the client you need the money for cash flow (even if you do) and you certainly don’t want to say to them you think they may be ‘dodgey brothers’. So, it’s door number 3; workload management. The secret to your success is explaining how the deposit saves the date.
I worked with a building designer who was struggling with how to tactfully explain this to a resistant client. So, I suggested the conversation could go something like this.
“The reason I collect a deposit on every job is so I can allocate that work into my diary which means the deposit saves the date. At our meeting, we discussed estimated timeframes which were based on prompt payment of the deposit once the contract was signed. As you can appreciate, I am working with many clients, and even though I have tentatively allocated to start your work (or in my case a speaking engagement) on that date until I receive the deposit payment, that remains a tentative booking. So, if another client comes in and wants that date, I will call you to see if you will be going ahead with a prompt payment or whether we will be postponing the work/presentation to another date. Unfortunately, the reason I have instilled this as a not negotiable part of my business systems is because I have previously taken people at their word and then they have changed their mind at the last minute. This has meant another client has missed out on working with me at the time they wanted.”
Collecting a deposit can be an easier process and conversation than you think. It’s all about communicating to the client what the deposit represents and why you have implemented this consistent system into your business.
Then, if they still resist, you can decide if you really want them as a client?
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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