Getting paid: Upfront, take a deposit or once the task is complete?
Following an AccountingWEB reader's deliberations on getting paid, Kevin Whitehouse gives his take on the age-old question: when should you charge for work?
Doing a bunch of work and then not getting paid for it, or having to wait to be paid, just sucks. I know this from bitter experience.
A recent discussion on Any Answers shows that getting paid continues to be a thorn in the side of practitioners. The reader was approached for a one-off job and wanted to know whether they should charge upfront, bill later, charge 50% upfront and then 50% once the work is done.
The AccountingWEB community warned the reader to not work on credit. As one member said: "[I've] been burnt a few times by trusting people I thought I knew."
I’m going to suggest that the answer to the reader's question goes deeper. Some will suggest the answer is “it depends”, but I think that’s a lazy way of looking at this. Let’s be more analytical and break down the thought process behind this question.
First, answer a different set of questions
Being paid for a product or service is the basics of business – it’s a quid pro quo. I do something for you, in return for you giving me something, and of course, it doesn’t always have to be money.
Whether we get paid in advance, take a deposit and or get paid after we complete the job, all starts with a different set of questions. We must first establish: “What does your client want?” Followed by the next critical question: “Do they believe you are the right person to help them?”
And this part of the process is why some will say “take a deposit” or “get paid after doing the job,” because it’s a lack of belief. Sure, you believe the service you are going to deliver is your best service, you’re going to work hard, and deliver on time. But that’s kind of a minimum requirement.
Added to this lack of belief, both you and the client may not even have clarity about what it is that needs doing. Say, for example, you believe they need a budget and forecast and you know it will help them. Your client might not understand what that looks like and certainly doesn't understand what the benefit of having one will do for them.
Which takes you back to the first real question: “What does your client want?” They don’t want a budget and cashflow forecast, or a graph or a set of accounts or a tax return, because they don’t understand the benefit it gives them.
That doesn’t suggest you are wrong and they don’t need it, it simply means you haven't communicated enough. But, let’s say you believe they do understand the benefit, let’s say they really understand your reports and the work you are going to do is exactly what they want. If you have established that, do you not think they also will expect and believe that you know how to deliver this? Of course, they do.
If both you and the client know what the benefit of the task or job is and you both know you are going to deliver your very best service, then we have the next part of the analysis.
“What's the quid pro quo?” If it is agreed that you are to be paid with an amount of money, then firstly, you don’t really get to decide how much. You can quote, but that is just a figure you hope to get. Ultimately your client decides what it is worth to them, but that’s another topic on its own.
Putting that aside, if both parties agree to the amount of money to be paid for the service you do, only now do we address the question everyone is asking: “When do you get paid?”
If you are confident that your solution brings a real measurable benefit to your client, then there is no doubt you won’t be paid for what you are about to deliver and thus there is no reason why you shouldn’t demand your fees to be paid in advance.
If your client resists then you haven't answered the questions properly. “What does your client want?” and “Do they believe you are the right person to help them?”
The action of being paid in advance also speaks volumes about you and your relationship with your client, and this leads to a topic the industry says is really important and that is trust.
Being paid in advance signifies a different level of trust both ways. Your client trusts you to deliver, so much so, they are willing to pay you in advance, and you trust them that the work will be received and used as you intend.
If you wait until after you have completed the work and send your invoice expecting to be paid in 30 days, or even if you take a part payment, then perhaps you don’t believe what you do is of real benefit and maybe they don’t trust you enough.
But what about a part payment? Isn’t that a compromise? There is no compromise, you're in business to make money and you are offering your time, your service and once spent it can never be recovered. Why then should you be risking any of it to help someone else if they don’t trust you?
A part-payment would be if you don't have full clarity over the task being done, so in effect, you have more than one task and thus more than one quid pro quo.
I understand personally why the question is being asked. I’ve been running my practice for nearly 30 years and I used to lack confidence and lack knowledge about how to go about charging. I’ve done it the hard way and the easy way and know without a doubt that being paid well and being paid in advance, not only helps me but more importantly, it really helps my clients.
You might believe I’m wrong, you might be happy to have a big pile of work in progress and debtors on your balance sheet, your clients might also be happy to trade that way, just remember you have no right to complain and moan when you don’t get paid because there is a better way.
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Kevin Whitehouse has run his accountancy firm Prime Entry since 1991 and is now also mentoring other accountants on how to run their practice with less stress, more profits and if they want, less time...