As a business no matter whether you’re just starting out or if you have been doing it for a long time nothing will sink you sooner than getting it wrong when it comes to making sure you get paid and not paying your bills or doing the wrong thing by suppliers who create the products that you have sold to your customers.
It seems like a no brainer of a topic when your just sitting here reading it but when your running your business as best you can or you’re put on the spot by a person or company wanting you to supply a service or product and to invoice them (ie not getting paid up front or not straight away), instead of getting payment up front what can seem like a simple transaction / process or someones best intention can turn into a big problem, especially if you’re having to cover the initial up front costs of making or supplying a product or service and then waiting for payment.
So I have a bit of advice to share with you on a range of situations you’re going to come across, along with examples of where I have encountered problems in the past and not to distant past as well… hey were always learning.
Know the Order of Things
As a print lab owner, this is one situation that I find annoying, it is the situation where you print a job for a photographer and issue them the invoice and get told “I’m just waiting for my customer to pay me first”.
Your my customer and your customer is yours. Your customer is not my customer. If they don’t pay you or if they pay late that isn’t the labs problem, that’s yours. It is your responsibility that when you place an order with a company for your business you have an obligation to pay them. It is up to you to make sure that you handle your side of the business where if you take an order off a customer and decide not to get a deposit or payment upfront your holding that liability, not the company making the product and if your customer cancels then you still need to pay for what you have ordered.
This is the importance of making sure you run your business correctly. It is totally fine if you don’t take a deposit up front, but just know that if you’re incurring costs, ordering products as part of completing that job, you need to cover all the bills regardless of the outcome… of course 99% of the time the outcome is fine, but when that 1% gets you, you will know about it.
Alright now that you know the lay of the land when it comes to your responsibilities as a business owner and paying your bills here are some examples of how I have handled jobs and also miss handled the liability attached to them.
Example 1 – I recently took a $23,000 job off a government company in January. They approved the order and my invoice was submitted. Up front, I had to easily order at least $8000 with of materials to start. The invoice didn’t even get paid until after July as they pushed it to the new financial year, which is fine. When the invoice was paid I then ordered my materials. I wasn’t going to carry $8000 worth of product debt, imagine if I ordered materials from a company in February and told them I was waiting to get paid and I got paid in July. I could have found myself in very hot water and also ruined any chance of using them again.
Moral of the story… only accept debt if you know you can cover it. When you have been paid is the only true confirmation that the job is 100% going to happen. Don’t get caught.
Example 2 – At the end of 2016 I did printing work for a local portrait photographer and his wife. They were nice people and gave me steady work. They paid about 3 weeks after jobs were collected, which was fine, then they started to take longer and longer to pay and I had to say something. I also clarified that when they placed an order with me that they had already been paid in full by their customer. Their mark up from what I was supplying was about 200 – 400%. So they weren’t giving it away. With the approach of Christmas, I did their orders and also some personal images as well that they wanted to give to family.
For the next two months, I had to chase them, I was told they had bills on a rental property, that their car had issues and needed to be fixed, but at the same time, they still went to Queensland as a family over Christmas. Basically, I was getting taken for a ride and they were very sorry for keeping me hanging on an $800 bill that they paid off in $200 instalments over the next month. At the end of the payment, I notified them that they had been paid up front by their customers and should have honoured their obligation to finalise my invoice and that delaying it for almost three months was unacceptable and I ended with telling them they needed to find a new printer and company to print their work.
As a business, you need to learn from your mistakes, I should have seen this coming, I could cover an invoice for $800, as really it was more like $400 in costs to me. Even if they didn’t pay a $400 loss isn’t going to hurt. If you give people or businesses time to pay, just make sure you can cover the liability should thing’s go bad.
Moral of the story… these customers and I built up a friendly business relationship due to a mutual love of photography. They miss took it and me as someone they could pay whenever and I miss took that I had a business to run and needed to act accordingly and should have stuck to strict terms and not released the goods without final payment.
A notification message from a customer placing an online order and paying via PayPal during checkout.
How to Ask for Upfront Payment / Deposits
Sometimes asking people for upfront payment can be met with objection as a customer can be weary maybe from past experiences of not getting what they paid for and want to pay on receipt or they just don’t like to do it. It can be a tricky minefield to navigate especially when you want the business but not the liability that goes with a job.
For me when asking this comes down to a few simple things. Now when I list these it might mean you need to go back and fix and tidy a few things up with your business.
Ok… when asking for someone for an upfront payment and they are cautious I point out.
- That I am a professional business with a registered ABN number and excellent track record.
- As a registered business I point out that the customer is covered by the terms and conditions outlined by the Department of Fair Trading should they be concerned. Be careful wording this as you don’t want them to think you deal with them a lot when you don’t. Maybe just say like all consumers your covered by the Dept of Fair Trading.
- I point out that I own my own print and framing lab and personally oversee everything that goes out and I have a very high standard and use only the best products. So self-promote how you do an excellent job, what you offer, the quality. Something that gives them peace of mind.
The following below are subliminal when you have a nice well thought out website.
- My website looks professional, neat, clean, laid out well and it looks like I don’t even need their business to succeed.
- My website is built for customers that can not just shop easy, but it is full of social proof. My homepage has example after example of orders that have been completed and shipped to clients, as I photograph almost every order that goes out and I upload it to my website. Wedding & Portrait photographers frequently have shots from past shoots on their website. Even if you cant access to see the images in the galleries you can see the thumbnail with the name of the couple and the date of the shoot, it is all proof of success, proof that people use and spend money with them.
- My google profile is full of five-star feedback given to me by past customers leaving reviews. If you don’t have this you may have facebook reviews, feedback, proof that you operate.
You don’t have to say all these, some people will work out themselves when it comes to looking at your website. A good website with good information goes a long way to providing customers peace of mind. On my website, I can have customers order $3000 + worth of items in a single order and I then ship them overseas or interstate, they don’t call or even email me prior, they just order. That level of trust comes from showing that you’re trustworthy.
If you’re still struggling then ask the customer to pay a deposit, a deposit should be at least an amount that is going to cover you for your end of the costs to produce the product or to cover you for the time you’re going to invest into their project. I ask for 50% deposit up front on orders.
Give and Explanation
What I find works the best is to acknowledge a customers hesitation to pay upfront regardless of your feelings on it, but then kindly point out that your the one or company that has to pay for the upfront materials, invest the time, put on hold/decline other bookings for the same time slot or date. It always pays to give a reason for your side of how you run a business.
If all else fails then it comes down to you making a decision. What’s the financial liability v’s profit in it? Is it worth the risk. For me, if it is a low-value item then I will decline the business as it isn’t worth the hassle. Note that getting a refusal is low. 99.99% of the time people see the logic in a business asking for a deposit on a product or service. The larger the order value the more sensible such a request is and your customer will see that.
Work on that Blueprint
Remember that all these decisions that you are making now all form what’s called your Business Blueprint. If you missed that article then you can find it here. So be sure to write down the decision that you have made, even give yourself examples of what has happened (name of the person the date, so you can go back to emails or correspondance) and how you dealt with it as a reminder should you need to refer to it later.
Wrapping It Up
When running a business it’s success and failures all rest on you. How many times have you watched the news to hear how a building company goes bust and along with it all the builders, plumbers etc are left with tens of thousands of dollars owed to them. Basically, they took the risk of the work being finished and them being paid but did the work without payment and as a business, they held the liability in time spent on the job and materials. It’s a different industry and will operate differently with work being done upfront without payment, but I’m sure you can see what I mean. As a small business, you make the rules don’t put yourself at risk, or if you do, manage that risk with what you can cover.