Up front payment discount 1

[Wiseel]

Hi all, i have another query regarding my planned design consultancy start-up.

I just wondered if anyone offers discounts for voluntary payment of services up front, as opposed to the usual 30day terms? I'm thinking this might help encourage healthy cash flow in the early days of my business.

If so, do you find it works as an incentive? What might a reasonable percentage be for design works?

 

[phamENG]

An interesting idea. I think I would hesitate to do it. But it's probably more self awareness. Knowing that I'm not getting paid until the job is done would help keep me motivated to get it done.

Now I have seen it done where certain clients (or, rather, categories of clients) are required to pay at time of receipt of the work product. Real estate transaction inspections are a big one. They like to try to promise to pay you out of the closing - well that puts you in an odd spot ethically since a damning report that sinks the deal also sinks your chance of payment. So we'd put the report in a sealed envelope, and they hand over a check when we hand over the report. Similar for one-off residential clients. Way too many would flake out and not return our collection calls, so all designs under a certain, reasonable threshold had to be paid when the drawings were provided.

 

[gte447f]

In my experience, offering an early payment discount usually isn't effective and will just be ignored. Instead, demanding full or partial payment up front is all about leverage. For small unsophisticated projects and clients, like residential inspections, you have the leverage to demand full or partial payment upfront and/or full payment upon completion of your deliverable (e.g. drawings, reports, etc.) For larger, more sophisticated, commercial projects and clients, like commercial architects, forget about it; the industry norm is slow payment and pay when paid so they are not going to pay you until they get paid. Construction contractors as clients are somewhere in between; they generally pay within 30 days without too much hassle because they themselves expect to get paid on time and so do all of their subs.

 

[cvg]

some states allow you to file a mechanics lien. this will give you some collateral and will definitely help you collect your payment.

https://www.handle.com/california-mechanics-lien/

https://www.csemag.com/articles/know-the-lien-rights-for-engineering-services/

 

[glass99]

I have seen up front payment discounts of a couple of percent been used, though they are rare for whatever reason.

 

[BrianPetersen]

Only viable for dodgy clients, in which case payment in full for completing the services/deliverables should be the only choice (and no discount). Private individuals automatically fall into that class.

All established companies will want to pay later, on their terms.

 

[msquared48]

I require a retainer up front with full payment due at submittal. Sometimes phased payments too for larger projects. I never give up front discounts.

Full up front gives the client too much leverage to complain about scheduling...

Mike McCann, PE, SE (WA, HI)

 

[Ron247]

Sending an invoice after the work is completed but offering a discount for prompt payment is similar to purchasing materials. Invoice says payment in 30 days but offers a 2% or 3% discount for payment in 5 days for example.

Payment up front is generally for Clients you have had problems with in paying on time. Especially the ones who owe you until the next time they need you and then pay the old invoice. Kind of like the neighbor who returns your wrench 3 months later when they need to borrow your hammer.

Payment up front by a good customer who pays on time can cost you a good customer if you do not promptly do their project. They pay you but then you stick another client in front of them is what tends to happen when your cash flow gets restricted. It is human nature. If they find out, I can see them really getting mad. That is possibly the biggest potential pitfall.

And one of my pet peeves, does your invoicing terms match your payment history? Are you willing to do the same or similar for people you owe? I had a structural client that I also bought steel from. They started calling me after 30 days for $8,000 I owed them while the $3,500 they owed me on 30 day terms was at 65 days. They generally paid between 60 and 90 days regardless of what the invoice terms were. It still bothers me to this day and that was in 1994.

 

[glass99]

One thing which is more normal is a mobilization payment before you start work. Its typically around 10% but can be as much as 50% for our small projects with contractors.

 

[Wiseel]

Thanks for the advice everyone, i think i'll go with invoicing immediately upon completion and delivery of work offering a couple of % discount for payment within 5 or 10 days