I picked up some pretty good habits when I worked for my last company - things that helped immensely in running my own business. One of those things was to get paid first (by the client) before paying the vendor. The goal was to never pay out before being paid. We’re not in the business of loaning anybody money, interior designers are not a bank.
However, when I started my own business, this rule was amplified because I didn’t have the money to loan. I needed to get paid first.
This just makes good financial sense.
Not Worth the Risk
There are two areas that you should get paid first, because it’s not worth the risk to your business to wait. You should get paid before you purchase anything for the client and you should get paid a retainer or deposit before you start working on the project.
Until the client pays you, there is no guarantee you’ll get paid. You could end up stuck with a very expensive something if the client changes their mind. You could end up with nothing if you prepay for a service and the client never reimburses you. You could put in hours of design work before the client decides to DIY it and you’re out of the picture.
It is good business practice to get paid first.
There is too much unnecessary risk in putting out your own money first.
Purchasing on Behalf of Clients
Whenever I purchase for clients, I require 100% deposit. Period. No exceptions. My business is not a bank and I don’t want to be stuck with product I don’t want as part of my inventory. When my clients sign and approve the proposal (read more about my client project binders) and send me a check (read about taking credit cards) I then cut a purchase order and check for the vendor and place the order.
This is the same for something that is $100 or $100,000. The same whether I pay a deposit to the vendor or in full. The same for product (wallpaper) or service (wallpaper hanging).
Admittedly, there are some things that I have paid for first. These are things that are usually fairly easy to recoup the cost in the case that the client changes their mind before they pay. Lower cost items or something I could easily use in another client’s home. But this happens very infrequently.
The other way that you can protect yourself is by getting a retainer or deposit up front for your design fees. I always recommend getting one before you do any work on the project, usually at the time that the client signs your contract. In my contract, it says:
Upon signing this Agreement, Designer shall receive a non refundable initial advance of $rate, which constitutes the minimum fee due Designer for Design Services. The advance will be credited against hourly fees otherwise payable by Client to Designer for Design Services at completion of project. All Design Fees are non refundable.
This clause let’s clients know that I require a deposit upon signature and that it will be applied to the last (or close to it) time billing invoice of the project. This way, if a client isn’t paying a bill you can stop working and still recoup those costs with their deposit.