Ask For Deposits And Progress Payments



I am continuing this blog series by presenting a few steps that a business owner can take to improve the cash flow of the business.

Your business needs cash to operate.  It also needs customers who will buy from you. Often, to get these customers, you must offer some type of credit terms.  This is just one of the facts of doing business.  But you need to find the right mix between collecting cash and offering credit that will keep your cash flowing so that you can be confident of paying your bills when they are due.  Here are a couple of ways you can find that right mix.

Ask For Deposits.  You may not need to offer 100% of the sale price on credit.  Get a deposit or a down payment on the sale.  This will give you a fair amount of cash up front and the amount can be significant if you are selling a big ticket item.

Progress Payments and Installments. If you deliver your product or service over a few weeks or a few months you should consider getting periodic payments.  You should request these payments to coincide with when you need the cash to pay your bills.  This could be on a weekly basis or a monthly basis.  Receiving payments when certain phases or “milestones” have been reached may also be an option.   Certain construction contracts are written to get paid on a milestone basis.

Offering credit is a necessity for many businesses.  From the perspective of your customer, it separates the pain of buying from the pleasure of the purchase.  “Buy now, pay later” can be a powerful incentive for your customers and result in increased sales for you.  But you should be smart about your credit terms.  After all, you need to have a regular flow of cash coming in every month to keep your business going.

photo credit: Box 296 via photopin (license)

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