5 Essential Reasons Your Trade Business Should Charge a Deposit

deposit, trade business need to charge a deposit

Trades businesses often spend several weeks and months on any given project. Construction projects, for instance, involve a lot of planning and coordination, not to mention the upfront costs associated with materials and equipment. However, all the time and resources you put towards a project can leave your business strapped for cash. Plus, not all clients pay their invoices on time or end up defaulting on payments, which can severely impact your company’s profitability.

It’s therefore a common practice for trades businesses to request a deposit from clients before undertaking a project. Here are five compelling reasons why your trades business needs to do just that:

Protect your business from non-paying clients

A deposit acts as a show of faith from your client. That is, by putting money into the project up front, they’re demonstrating their capacity to pay and commitment to seeing the project to completion. In a way, a deposit is a barrier that keeps those who lack funds from wasting your time and effort. If a client is unwilling to put down a deposit, it often indicates that they may not be able to or have no intention of paying their invoices in time. 

Cover project expenses with the initial deposit

Initial costs for a new job can quickly add up, especially if you need to buy new equipment or materials. These costs often need to be paid upfront before you can begin work, which can put a strain on your business if you have limited working capital.

A deposit can help you finance a job’s upfront cost. This way, you can start a project without dipping into your revenue and putting your business at financial risk.

Maintain a healthy cash flow

Certain projects can take a long time, which means you might not receive full payment until long after the job is completed. At the same time, you need to pay for operating expenses like your technicians’ salaries, rent, and utilities. If you’re always waiting on revenue from completed projects to pay your bills, the slow cash flow could put you out of business.

A deposit will help you pay your bills on time and stay in the black. You can even set up milestone payments for larger projects so that clients are required to make partial payments throughout the job instead of one lump sum at the end. As long as you continue doing good work per the clients’ expectations, you should have a steady stream of cash, keeping your business afloat.

Encourage client participation

Clients who place a deposit are more willing to be involved in a project since they have skin in the game. This doesn’t mean that they’ll be micromanaging every aspect of the job. Client involvement may take the form of providing timely feedback, responding to requests for information, and attending meetings or site visits. They ensure that the project is headed in the right direction and your team delivers the desired results. Regular client feedback will also save you a lot of time and money that would otherwise be spent making changes after the job is completed.

Avoid scope creep

Another advantage of having a deposit is that it discourages scope creep. Clients may be less inclined to make additional requests in the short term because it will cost them more money on top of a deposit. In fact, charging a deposit may actually spur clients to be more hands-on with the project planning phase to minimise change order costs. 

Asking clients for money up front may seem like an uncomfortable conversation, but it’s a necessary step to protect your business. If you need more advice on cash flow management and client payments, WorkBuddy is happy to help. We also offer an all-in-one field service management platform that can streamline your operations. Book a free personalised demo with us to learn more.

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