Pay Now, Or Pay Later?

[husker]

I think your experience in this will depend largely upon how you are doing business.

For many years my customers were those I knew, those I worked with, and referals. I took the orders, produced the product, then delivered and collected. Never any problems.

When I started doing business on-line I continued the same way, completing each product (and even sending photos) prior to payment, and I offered a "no questions asked" return policy. That lasted for a year or so. Then I noticed that about 5% of customers did not complete the transaction for various reasons (found something elsewhere, traded handguns, etc). Finally, I experienced a couple of months during which dozens of orders were returned for refund (all from a cluster of zip codes, so I suspect it was either someone's idea of a joke, or intentional sabotage of my little business). So I changed both my payment and warranty policies.

Any order reaching production stage that has not been paid is placed on "hold" status, and if payment has not been received by the estimated completion date the order is considered as "cancelled". My warranty is limited to defects in materials or workmanship for a period of one year.

Last year I received about 1600 orders and 71 were never paid (4.4%), so they were never made. The 4.4% that were never made amount to two weeks of production, so I was able to produce those orders that customers actually wanted without unnecessary delays, and the profits of two weeks of my time were not just lost in the process.

I still have the occasional "leaker", an order that is completed before payment has been received. When that happens I contact the customer and find that nearly all of them have changed their minds, found something elsewhere, traded the pistol, or some other variation of the excuses. When this happens I put the product in a box, then hold a clearance sale a couple of times per year offering them at a good discount to make them go away.

There are a few names I see several times per year on new orders, those orders are never paid for and never get made. They keep placing orders again and again, so I don't know what their motives might be.

Your experience may vary, but I think mine is generally reflective of people in general. Some change their minds. Some place orders they may not be able to afford. Some change handguns more frequently than others change their socks.

11 holster designs, with or without 4 common options, in 4 finish colors, for 137 handgun models, results in over 24,000 possible variations (not counting left-hand versions). At my current rate of production the likelihood of receiving a duplicate order is something like once every 15 to 20 years, and that is for products that are more or less standardized. If you are doing custom, one-of-a-kind, special orders it could get real "iffy" to produce anything before payment has been received.

That was a great response Lobo. Thanks.

[particle]

Agreed - thank you Lobo, and thanks to everyone else as well. I started this thread thinking I was going to be in the minority, but it looks pretty evenly split so far! My wife and family have been pushing me to take payment up front, but cancellations haven't been a big problem for me so far. I always email the current batch of customers right before I begin their orders to make sure they still want their holster and to confirm they don't have any changes to the order. There is almost always tweaks to orders!

I will say the only reason I am even debating taking payment up front is because I'm building a new website, and the shopping cart system doesn't have an option for buy-now, pay later. I won't get into the nitty gritty of how it works (partly because I don't understand some of it), but in an effort to simplify the ordering process for my customers and the invoicing process for my wife (she handles the billing), I'm almost forced to accept payment up front unless I want to pay someone to develop another option for my site which I can't afford right now. But at least I know I won't be in the minority if I start requesting payment up front!

Spinner - that's a good idea about a separate account for deposits. We debated keeping it in PayPal, but it's probably better to create a new savings account at my bank... Good idea!

[Spinner]

Agreed - thank you Lobo, and thanks to everyone else as well. I started this thread thinking I was going to be in the minority, but it looks pretty evenly split so far! My wife and family have been pushing me to take payment up front, but cancellations haven't been a big problem for me so far. I always email the current batch of customers right before I begin their orders to make sure they still want their holster and to confirm they don't have any changes to the order. There is almost always tweaks to orders!

I will say the only reason I am even debating taking payment up front is because I'm building a new website, and the shopping cart system doesn't have an option for buy-now, pay later. I won't get into the nitty gritty of how it works (partly because I don't understand some of it), but in an effort to simplify the ordering process for my customers and the invoicing process for my wife (she handles the billing), I'm almost forced to accept payment up front unless I want to pay someone to develop another option for my site which I can't afford right now. But at least I know I won't be in the minority if I start requesting payment up front!

Spinner - that's a good idea about a separate account for deposits. We debated keeping it in PayPal, but it's probably better to create a new savings account at my bank... Good idea!

Something else that helps with avoiding cancellations, especially with a long backlog is communication. I've made myself a good reputation for communication with my clients but I've been trying to figure out how to improve it during the 'blackout period' between the order and job construction. Figuring that typically I'll have a good discussion on the project specifics, invoice the client & confirm payment and then the wait...then once the job starts we begin communicating regularly again but in the middle there could be 1-2 months of them not hearing from me. For most this is fine, they understand the wait for custom items but I personally want to improve my review marks so starting next week I'm going to be putting together a newsletter of sorts that will go out to clients that have confirmed orders that aren't in process (in process orders get pics of the major construction steps so they are already hearing from me) just to let them know I haven't forgotten about them. I'm still working out what to include to keep it short & concise.

As for accounts, I struggled with it for awhile thinking multiple accounts would be a pain but it has worked out well. I actually have 3 bank accounts for the business. I also use paypal but it's linked to the main bank account and I simply transfer funds each time I get paid to keep the records easier to manage and to be able to use their shipping service (not to mention Paypal's sales reports suck, my bank's are much better so putting it all there makes my life easier).

Working Capital: this account has all confirmed/completed order payments and is used for buying supplies, etc.

Deposits: This account is for payments received but are held until the job start. Once the job begins, the related funds are transferred to working capital

Taxes & Fees: this account gets a 10% cut from all completed jobs and is used as a backup source for paying taxes, business fees/licenses, etc.

Why the third account? It's simply a safety net in case I don't have enough in the main business account to cover when Uncle Sam comes calling. At the end of the year, once everything is paid the remaining funds move to the working capital account - kind of like a year end bonus or tax refund.

[Reaper]

Up front, though I meet most of my customers face to face and it keeps me busy enough without doing on line sales.

I learned a long time ago working on peoples homes, that you never build anything for anyone with your dime. Take a deposit that covers the materials at least, and the labor upon completion.

You could not imagine how many people loved the Job being done while it was being done, bragging it up to friends and such only to get poor and think it was time to haggle when it was time to pay.

So I quit operating on my money to do peoples jobs and I quit eating $$$$ a year by doing so.