We have face based attendance solution. The pricing is user based licenses. The B2B customer has to buy as many user licenses as the number of employees who will enroll themselves for daily attendance. The total deal is of $20000 for 1 year. We have to provision the system, provide support etc and hence we ask for 50% advance payment. The remaining is paid on a monthly basis. The CIO wants to understand why the advance payment is required even before we start. Seeking clarity to understand from the community that what are the convincing reasons to ask for advance payment from a B2B customer for any cloud based offerings?
I would recommend invoicing for the full year up front. If anyone asks, tell them that this is industry standard. Salesforce, HubSpot and many others do it this way.
If that answer isn't sufficient, here are some others reasons that are beneficial for the customer:
- It simplifies the accounting for the customers - one invoice instead of 6-12
- If you were to buy packaged software, you would pay a huge up front fee and then annual maintenance - we are just asking for the first year
- If you pay monthly, there is no commitment, so there is less incentive to get buy-in from the team and users
If the reason you're charging the advance is to cover setup costs, why not position an initial pre-payment as a one-time setup fee instead of an advance payment? This is common and would be less likely to generate push-back as a payment timing negotiation.
IF asking for advance payment doesn't prevent sales to close (which is why many companies avoid it), the benefits of getting advance payments are:
1) increased cash flow.
2) creating a deeper client commitment (making it more difficult to back out, stall, or change terms)
3) removes the burden on the vendor to go into "collections" mode which can be frustrating and difficult.
4) Gives the vendor a balance of leverage which can create a healthier relationship between both parties.
5) Gives the vendor the funds to proceed (assuming resources, etc. will be used). Otherwise, imagine resources are used to queue up the client, and then there is non-payment...the vendor then suffers a loss that may not be recovered.
If this creates any friction during my sales, I start by explaining that they are paying for services not products. Like all services, once reserved or provided, I have no way of recovering costs if the client has any issues with payment. It might not have be nefarious non-payment, or anything to do with satisfaction, it could simply be cash flow or adoption issues the client experiences. So much like booking a seat on an airplane, I need to be able recover costs unrelated to the customers ability or desire to pay.
So by focusing on the idea that they are reserving services and capacity, it aligns my offerings with comparable services that have established similar payment arrangements. I find this common sense comparable usually does the trick to allay any concerns. If it doesn't, it alerts me that this client might not become problematic in other ways and I should exercise care.
As a trained negotiator, I can provide more approaches and techniques for proactively removing this type of friction from your offerings and sale fulfillment process. Schedule a call if you'd like more in-depth discussion.