Captain’s log, stardate 20160911
What about: “Sorry, company policy expressly prohibits advance payment for services”
Sent by Jonathan Stark on September 11th, 2016
One of the great things about pricing your services instead of tracking hours and billing for your time in arrears, is that it enables you to ask for 100% payment in advance. I’ve talked about how and why to do this at length in the past so I’ll quickly summarize the approach:
- In initial prospect meeting, try to talk the prospect out of working with you by having The Why Conversation. If you can’t talk them out of working with you by the end of the meeting, they’ll have convinced both you and themselves that hiring you is their best option.
- Present a proposal with three incremental options, each with a fixed price based on the perceived value in the mind of the prospect. The first option will be precisely what was agreed to during the meeting; no more, no less. The second and third options will be not “more of option one” but rather, adjacent and/or complementary services. Providing multiple options gets the prospect thinking about how best to work with you instead of whether or not they should work with you. Providing incremental options (as opposed to ala carte options) decreases your risk of leaving money on the table.
- On the proposal, ask for 100% payment up-front to schedule the work. If you’ve done a good job in The Why Conversation, 70-80% of prospects will simply make payment, no questions asked (I know this seems incredible but I assure you it is true). The remaining prospects will counter by asking for 50% deposit and 50% paid on completion, to which you will counter by offering 50% deposit and 50% in 30 days (or some other specific date). Explain to the prospect that tying the second payment to delivery would put pressure on both parties to execute sign-off prematurely, which almost certainly result in additional unplanned expenses for the client.
At this point, the prospect might try to pass the buck by claiming that they just can’t pay in advance and need to pay you net-30 (or 60, or 120) because company policy expressly prohibits advance payment for services.
This is a form of the “We’ll Never Get This Through Accounting” discount request discussed in the Learn Your Lines series.
Unless you are in a desperate cash flow position, my advice to students in this situation is always the same:
Stick to your guns.
True buyers can and will work around rigid policies if they know they really need you.
But what exactly should you say?
A polite No is usually not enough because the odds are good that they will have to state their case to someone in the organization over which they have no direct control. This means that you need to arm your contact with a convincing narrative that they then use on their boss or someone in accounts payable.
Some approaches I’ve used successfully in the past:
- Point out that you’re not a bank
“I’m just not in a position to extend credit for this.”
- Offer to accept the net 30 payment if prospect agrees to a significant price increase
- Offer to accept the payment in 30 days, and tell prospect you’ll start then
“I totally understand budgetary constraints. How about I invoice you now and we plan to start in 30 days when your payment comes through? I value you as a client and am willing to hold a spot in my calendar on a handshake basis.”
Don’t Get Your Hopes Up
These lines (individually and in combination) have worked for me, but they certainly don’t always work. If you’re working with a large organization (or if you’re not talking to the real buyer) your chances of success are probably fairly low. Regardless, I recommend you stick to your guns. If you capitulate, you’ll be framing your relationship as “master/servant” instead of a “partnership of peers”.
P.S. Does getting paid 100% up-front sounds like a dream come true? It is, but the first step is to stop billing by the hour: Hourly Billing Is Nuts