How your business can get customers to pay upfront

Overcome resistance to advance payment by offering greater value


Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

Ask Elaine a question or read her prior answers in the 'Your Business Credit' archive.

Question Dear Your Business Credit,
We have a limited-edition, leather-bound, five-book set that costs $5,500. We have two of them that can ship in four months. The next can ship this winter and the final two will ship in 20 months and 32 months respectively. Can we bill customers for the full amount now and ship the books when we get them?

The sets would be less valuable if broken up, so we don't want a customer to order the set and then have a credit card on file be declined after they receive the first two to three volumes. I look forward to hearing your advice. -- Brian

Answer Dear Brian,
One of the smartest moves you can make at a small business is to request advance payment for the products or services you sell. For one thing, upfront payments help the cash flow in a business and reduce the need to borrow money to finance your growth. In your case, it would also reduce the risk of devaluing your limited edition sets of books.

But there's a challenge -- and it's a big one. Customers need a very good reason to pay upfront, or it can be hard to persuade them to do it. You are essentially asking them to play the role of lender. Whether they have bills to pay or investments they want to make, there are plenty of other places they could put that money and come out ahead.

If you want to persuade customers to pay you in advance, you may need to offer them something very valuable in return, such as a discount. For instance, one of my children attends a martial arts school that offered us a free year if we paid for two years upfront. Unless the books you offer are extremely rare and sought after, why would they essentially lend you their money for up to 32 months without getting something to sweeten the deal? Given that you are selling five books, perhaps you could offer the fifth one for free if people pay you upfront for all of them.

I would also look for ways to shorten the period your customers have to wait for the books. For instance, perhaps you could delay the release of the first few books so all five are delivered in a one-year period. Book lovers may be more willing to front you the money if they know they will get the books relatively soon. There is a lot that could potentially go wrong and prevent the books from being released over 32 months.

I'd also recommend you do some digging into the many new types of subscription business models being developed. One popular book on the subject is "The Automatic Business: Creating a Subscription Business in Any Industry" by John Warrillow. Looking at the models other similar businesses have developed will give you some good ideas on how to find a payment model that works for your business.

Regardless of which approach you choose, make sure you let customers know what you'll do if they buy the books and aren't satisfied or you cannot deliver the books for some reason. Perhaps you could offer a money-back guarantee. I would get advice on drafting it from an attorney experienced in your industry so you can put customers' minds at ease without bringing undue risk upon yourself. If your books are as good as you promise to customers, you probably won't have to worry about giving out many refunds.

See related: Card updater services keep customers' auto-payments flowing, Auto-pay clients leave you open to more fraud, not EMV liability, Lowering merchant fees on large sales

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Published: February 15, 2016

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