Banking optimize

Stay ahead of the economic crunch by encouraging clients to pay cash

Some clients like to pay consulting fees with credit accounts that actually cost the consultant money. Susan Harkins suggests offering cash discounts in lieu of credit payments.

I find that most clients are eager to take advantage of discounts. Years ago, a client was in financial trouble, and it took more than a year to receive payment. I offered the client a discount if they paid in cash within 15 days, and they took me up on it. I chided myself for waiting so long to offer the discount.

During these worrisome economic times, it may be wise to offer clients a discount if they pay in cash. On one hand, IT pros are in a fortunate position because clients aren't going to stop using their computers and networks. However, you'd feel the pinch if even one of your consulting clients went out of business or if a few clients had to cancel (or substantially reduce) their monthly on-demand maintenance contracts.

An easy way to help balance some of these changes is to persuade your clients not to charge your fees. Depending on your setup, you could be paying 1.5 % to 4% in fees. When you add in the monthly fee you incur if you don't meet the minimum, the money adds up.

Most likely, clients will need some incentive to pay cash. If you offer a discount for cash payments made within a specific number of days, it could go a long way. For example, a charging client whose fee is $300 with a credit merchant fee of 3.5% nets you $289.50. So, it winds up costing you $10.50 to do business with this client. By offering this client a 1.75% discount for a cash payment, it lets you split that fee, and both you and the client save a little money. Instead of receiving $300 and paying the credit merchant $10.50, you receive a payment of $294.75, saving you $5.25. Your client pays $294.75 instead of $300.00.

While that isn't much money, but if enough clients use the discount, those small fees could add up to sizeable savings. I'm certainly not suggesting that you start to refuse credit payments; I just think it can't hurt to try the discount option for a few months and see what happens. Remember to make the offer clear on your invoice with verbiage such as THIS DISCOUNT NOT VALID WITH CREDIT PAYMENTS.

Get weekly consulting tips in your inbox TechRepublic's IT Consultant newsletter, delivered each Monday, offers tips on how to attract customers, build your business, and increase your technical skills in order to get the job done. Automatically sign up today!

About

Susan Sales Harkins is an IT consultant, specializing in desktop solutions. Previously, she was editor in chief for The Cobb Group, the world's largest publisher of technical journals.

6 comments
Sterling chip Camden
Sterling chip Camden

I don't accept credit cards myself, all my clients are happy with either sending a check or using PayPal. But I have given a discount for payment made in advance. That works nicely for cash flow.

ssharkins
ssharkins

Chip, I don't either and I've never had anyone ask. A small discount for a quick payment is a good idea -- I've got clients that want to take 90 days or more!

JohnMcGrew
JohnMcGrew

About a year ago, a few clients started asking about it. If I start to feel like I'm losing potential business that I might want, I'll consider it. But of course the rates for that work will be raised to more than cover the additional cost.

Sterling chip Camden
Sterling chip Camden

If anyone wanted to hire me and wanted Net/90, I'd refer to my CUL8R clause.

ssharkins
ssharkins

I've had a few try. I'm not even shy about it anymore -- an agreement's made up front. If a payment's late, I nudge. If they don't comply quickly, I stop working. I had to bite that bullet a couple of times, but I learned.