The issue of taking deposits can be quite a tricky one. There are some companies out there that make a point of taking zero deposits in their advertising. Some that take really low ones like £99. Some take quite hefty ones. For me, deposits are vital for the mass majority of our industry as most installation businesses are SME’s. Here’s why it’s vital for deposits to be taken and how much you should take.
Vital for cash flow
If your business is a small to medium sized business, or a family run one like mine, you’ll know how important cash flow is to your business. It only takes a few final balances to be held back by customers and suddenly cash flow can suffer quite badly. This is where deposits are crucial for SME’s.
At our place we have always taken deposits. This is our 34th year in business and customers don’t seem to mind paying a deposit when they sign up for whatever they are buying. The key though is getting the right balance. We have some competitors who don’t take deposits – which is risky but I’ll come on to that in a moment – so we have to ask for an amount which doesn’t seem too brash but is useful commitment money to us. It’s usually anywhere between 15-25%. I have been told that this amount isn’t enough by some. But for us, a deposit of that amount gives us a fairly decent amount of cash off the contract, and the customer doesn’t feel like they’re giving too much away.
What’s more, if you end up with a dozen contracts signed up in a week, those deposits really start to add up. If you have a couple of customers withholding their final balance, these deposits come in very handy.
What about stage payments?
Taking deposits on small to medium sized window and door contracts is fine. They don’t make for huge numerical figures and most businesses can afford to just take a small deposit on them. But what about the larger contracts? What about the glazed extensions and other high value contracts? For me, you have to take more than a deposit for those contracts.
Stage payments are another vital feature for SMEs. Say you are building a new glazed extensions for £18k, do you really want to just take a deposit on that amount and leave a massive balance? No, probably not. It leaves the customer with all the cards as they could withhold a rather large amount of money from you. For deals involving large amounts of money, taking stage payments at various points in the works is a good way to keep cash flowing in your business, as well as providing cover for you as a business as well. It stops those potential professional non-payers from leaving you in a mess, and even if they do, it’s likely the final balance isn’t big enough to cause that much damage should they decide to hold up on paying.
For me, whether you’re a large, medium or small business, deposits provide a useful form of cash flow. They’re a great back up to rely on as a business.