Here’s Why To Ask for A Downpayment

A few weeks ago, I contacted a local event organiser for a small gathering I wanted to hold for friends for my birthday in September. After discussing and agreeing on the date of the event and the menu for food and cocktails (along with a few small changes I requested), the contact person at the event organiser, who primarily communicated via WhatsApp messaging, went silent.

Then something felt off.

For some reason, I felt that everything was all too easy and at no cost to me. How could someone book a location for an entire evening, pre-order food and cocktails, and not request even a downpayment for the reservation?

A few days later, I received the revised menu with my changes included and the final offer, plus the magic words I expected: "If you are happy with the final proposal, you will need to proceed with a downpayment of 50% by 15 August 2024."

Here’s the thing:

Sometimes we feel that asking a client for a downpayment will put them off. But what if I told you that not asking for a downpayment may be worse?

Asking for a downpayment means a number of things:

Valuing Your Time: It shows that you value your time and do not want it wasted if a client whimsically decides to withdraw from a project.

Client Commitment: It indicates that you expect commitment from the client for an upcoming project.

Initial Investment: It provides you with the necessary funds to start investing, designing, and building the wonderful products or services you intend to deliver to the client.

Risk Management: A downpayment helps mitigate the risk of project cancellations or delays, ensuring that both parties are serious about the commitment.

Cash Flow Management: For small businesses, downpayments can help manage cash flow more effectively, allowing for better planning and resource allocation.

Conversely, not asking for a downpayment could mean:

Lack of Commitment: It may suggest a lack of commitment on behalf of the provider, not the client.

Lack of Professionalism: It could indicate a lack of sophistication and experience.

Lack of Confidence: It might show a lack of confidence in your services and your own value.

Potential Financial Strain: Without a downpayment, you may need to front the costs, which could put a strain on your finances, especially if the client cancels.

Red Flags: Not asking for a downpayment might attract clients who are not serious or are likely to be problematic, as they see no risk in backing out last minute.

Establishing Trust: Requesting a downpayment can also build trust and professionalism in the client-provider relationship. It sets clear expectations from the start.

Practical Tips for Asking for a Downpayment:

1. Be Transparent: Clearly explain why you require a downpayment and what it will be used for.
2. Set Clear Terms: Define the terms of the downpayment, including the amount, due date, and conditions for refund if applicable.
3. Use Contracts: Always use a written contract to outline the downpayment and other project details to avoid misunderstandings. Clearly specify what happens to the downpayment if the project is aborted, including whether it is recoverable or not. For example, you might stipulate that the downpayment is fully refundable if the project is canceled within 7 days of signing the contract, 50% refundable if canceled within 14 days, and non-refundable if canceled after 14 days.

What do you think, dear reader?

Feel free to share your thoughts below!

Philippos