All businesses depend on revenue. This is especially true for startups where maybe money is scarce. So, collecting cash upfront from customers is crucial and beneficial to the success of the business. Today, let’s delve into five ways to collect cash upfront from your customers. It’s helpful to your company.
How to Collect Cash Upfront from Customers:
- Default it into your agreements that all customers pay upfront
- Discount payment for cash collections upfront
- Incentivize your sales team to get payment upfront - especially for multi-year enterprise deals
- Bundle Free Services into an upfront payment
- Auto-Renew with plenty of notice so that you’re collecting upfront on renewals
Default into your agreements that all customers pay upfront
So the first way to collect cash upfront is just defaulting it into your agreements and the way you do business. This is primarily a lot easier if it’s smaller ticket items because people don’t stress out if they have to pay a full-year subscription upfront if it’s a small item. However, default pay upfront is both powerful and helpful. Most customers will default to following directions, especially if they want to use your application or service.
Discount payment for cash collections upfront
The second method is discounting payment for cash collections upfront. This is something that I think the startup world, especially the SaaS world, is getting more and more in tune with. Giving a partial 5% or 10% discount for cash collections upfront can trigger many cash collections. There are many vendors out there that have plenty of cash that want to use your service. So discounting is probably the best tool for generating cash upfront for your startup.
Incentivize your sales team to get payment upfront - especially for multi-year enterprise deals
The following method is one that people don’t often think about. You can incentivize your sales team to collect cash upfront, especially in big enterprise deals. Salespeople are very focused on incentives. They tend to be financially oriented and love the thrill of the sale. They love the charge of closing a deal, and they also love little extra bonuses.
So, suppose you can give them an incentive for a higher commission level. In that case, if they collect cash upfront or cash in the first year, that is valuable to your startup. This is especially true for enterprises that are selling two or three-year licenses or agreements. Getting year two and year three upfront is enormous. That is money that can be reinvested back into your sales team and customer acquisition.
So, giving the sales team an incentive to collect cash upfront is very, very helpful.
Bundle Free Services into an upfront payment
Another idea is bundling free services into an upfront payment. The classic example would be a software plus consulting service purchase. If you can either discount the people slash consulting time or effort or just give that consulting time or step away for free to incentivize cash upfront, that can work. Especially when it is a people-centric cost, many customers realized that software has a meager marginal cost, but people’s time has a very high marginal cost.
Auto-Renew with plenty of notice so that you’re collecting upfront on renewals
Finally, the fifth method is just doing an automatic auto-renew every year and collecting cash upfront on the auto-renew. Now you want to be careful and respectful of your customers. You don’t want to surprise them and want to give them plenty of notice. A month or two out, the arrangement will auto-renew, and the cash collected upfront would be sufficient.
Just being able to run the payment can be helpful to your business. The customer often does not mind that because it is less of a headache for them. It is fewer things they have to think about. As long as they signed up for the auto-renew in the first place, it is kosher to do.
So I hope that helps. Again, collecting cash upfront for your business can be powerful. You can re-deploy that cash into the company. It means that you will have to raise less capital from investors, and you can grow a lot faster.
As always, if you have any other questions, feel free to reach out. We are always here to help. Thanks so much.