Importance Of Formulating An Advance Payment Policy For A Business

Published Categorized as Woodworking Business

We think that it is extremely important to have an advance payment policy when running a woodworking business. Simply put when you agree to do a job for someone, always ask for an advance payment to the tune of 50% of the total charges.

There are many benefits of doing this. When a customer pays you 50% payment in advance you know that he is committed to you. He has no reason not to make the full payment when the time comes for delivering the finished work.

Even in a situation where the customer is not ready to make the full payment, intentionally or otherwise, you have the cost of the materials and sundries covered. You will only loose your labour charges.

For this reason a 50% advance policy is also known as customer funding and is a much preferable way of doing business as compared to investing your own funds or credit. Never put your own money or credit into a commissioned job if you can help it.

Getting a 50% advance is not a problem with a genuine customer. You just have to win their trust. You can do this by being clear, considerate and honest in your meeting with the client. If you have a work portfolio use it to establish your reliability. Listen carefully to the needs of the client and ensure them that you are dependable choice for the woodworking job.

Many times you will have to draw up plans for the client to show them the exact job you are going to do. If the client approves at this point the 50% advance should not be a problem.

There are certain circumstances where you might have to make an exception to this rule. If you are bidding for government work or corporate jobs, it might not be possible for you to get the advance as both these entities make payments on invoices after the work is finished. There might be inherent delays in payment when you pick up corporate and government jobs.

Although, these projects are often large and can mean a large income for the woodwork, they can create hardship for a single woodworking business as a lot of personal finances can get tied up. Regardless, you can decide to stick to your guns about the advance policy and you may still get that corporate woodworking contract.

Another kind of woodworking job where you are not likely to receive an advance payment is when working for contractors. Contractors only pay when their own payment gets released. This poses a risk and very likely a delay. Even when you do get paid it might be a lesser amount than you are due. The problems of working with contractors are many and we are not going to get into that in this post.

Just make it a policy to as for a 50% advance everywhere and be careful about picking up the job were you cannot enforce this policy.

Unless you do not complete the job as you are supposed to there is no reason for the customer not pay. However, misunderstandings can occur. Slim as the probability may be, intentionally or for reasons beyond his control the customer might not pay. Its wise to have insurance against this possibility.

Remember that for a certain condition to be a business policy it has to be enforced and adhered to strictly. Avoid making exceptions. That is the whole point and you will find it easier to get the advance payment when people realise that this is just how you work.


A situation where you can forego the advance is when the job is really small and you can complete it on site, on the same day. You can raise an invoice for it immediately and get paid promptly as well.

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