As a trades business, taking payment early and often is an essential cash flow tool.
Many of you may not request a deposit and you’re missing out on payment until the job has completed.
Good clients pay you early and often. These are better clients for your business cash flow as they ensure you don’t carry all the costs of the job before getting paid.
We share five reasons a deposit gets you better clients who pay you on time.
REASON #1 DEPOSITS LET YOUR CLIENTS KNOW YOU VALUE BEING PAID
If you ask all your clients for a deposit before commencing work, you not only get cash to cover your materials upfront, but you are actually pre-qualifying your clients as good payers – before you’re out of pocket.
By taking a deposit, you are making a statement. You are telling clients that you both deserve and expect payment. You are laying the foundations for a solid business deal, because you are, after all, running a business. To survive and not become just another statistic, you need to get paid faster.
REASON #2 DEPOSITS MEAN YOU DISCUSS PAYMENT TERMS UPFRONT
If you operate like a lot of tradies, you might confirm a job by calling the client. There might not be much (if any) chat about the charge-up rate, or how (and when!) you expect your client to pay you.
This lack of process and unclear payment terms tells your client a story – and that story is that you are lax about needing payment. By not telling them your terms, you give clients the message that money isn’t important to you. A weird thing happens when you don’t take charge and communicate how you expect to be paid: your clients will assume that you’re not too worried about getting paid, and that you’ll probably also be slack in following up.
So what happens? Your clients adopt the same casual attitude, and are slack with paying you when you do end up sending them your invoice.
Taking control nice and early by asking for a decent deposit sends the RIGHT signal. That signal tells your clients that you expect payment so you can order materials or book in the job. It also tells them when they can expect to be invoiced, so they can prepare to have the money on hand to pay what they owe you. It’s good for you AND it’s good for them, too.
Not only an essential tool for cashflow reasons, deposits screen potential clients. Taking a deposit ensures that the only people you’re working for are those who are willing to pay for your time right from the start.
REASON #3 DEPOSITS GET YOUR CLIENTS INTO THE HABIT OF PAYING YOU
If you respond ‘yes’ to any of the questions below, you should be asking for a deposit and it’s essential you get your clients used to paying you throughout the job cycle.
- Do you need to pre-order materials for the job?
- Do you need to schedule the job (i.e. you're blocking out dates of work for a client)?
- Do you need to pay wages every week?
- Do you want to get paid for the rest of the job?
- Do you want to be taken seriously as a professional tradesperson?
A deposit helps with cashflow as soon as you collect it AND it helps to protect that cashflow, so you can be more certain that the balance will also get paid on time. This is because asking for payment at the beginning of your client relationship makes asking for the balance part way through or at the end of the job a LOT easier – and it won’t take your client by surprise as they’ll be expecting your invoice.
REASON #4 DEPOSITS COVER COSTS
If you’re not sure about how much of a deposit you should ask for, a good starting point is to think about these five points:
- 1. The cost of any materials you need to order
- 2. The cost of your time to visit with the client, measure up, email or chat over the phone
- 3. The loss of another job if you book this client in and they cancel on you
- 4. The cost of how much you'll need to spend in wages between starting the job and getting the final invoice paid
- 5. The margin for admin to sort invoicing, banking and accounts to handle the deposit
This could end up as a sum like 25%, or if your fixed sum includes a big materials cost, it could be as much as 50% to cover that cost plus your admin time to sort and plan everything out.
Remember that you don’t need to have started the job to request payment.
REASON #5 DEPOSITS ENABLE YOU TO TAKE CONTROL TO YOUR COSTS
Clients like to work with a tradesperson or business who can manage their costs (and the client’s costs!). Clients also like to pay you during the job cycle to enable them to manage their own budget. No one likes surprises when it comes to payment!
By asking for a deposit, using a calculation based on covering the expenses or costs listed above, you are demonstrating that you are in control of your costs.
Control is linked to confidence. Clients like a confident tradesperson.
WHY TRADIE TERMS RECOMMENDS TAKING A DEPOSIT
CASHFLOW
A deposit covers some expenses incurred before the job begins. Cash flow is king and your trades business is no exception.
CONFIDENCE
Deposits show your client that you’re confident about your costs – a sign of a professional tradesperson. You can assess what costs you need to cover to lock in materials, cover wages and other expenses.
CERTAINTY
With tradespeople in high demand and supply chains slow, clients want – and need – certainty that you have ‘locked in’ their job in your schedule. Collecting a deposit confirms this for them – and you.
Remember that payment problems often occur because you have missed some opportunity to collect cash earlier in the job cycle and you’re left holding the expenses until your client pays you.
Take control of your contracting process and take a deposit for every job, every time.
Getting better clients is achieved by giving them the info they need about when to pay you and how often.
Need Terms of Trade that include rights to collect a deposit? Tradie Terms specialises in Terms of Trade for the trades sector
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