It’s very rare interacting with emerging or small businesses and not face requests for upfront payment before any delivery of service or product is made. It’s quite refreshing, on the one hand, seeing small businesses focusing on the problem and related solution without first mentioning upfront payment.

I feel for small businesses and their need to increase working capital to fund business operations. I have found that many customers are turned off by upfront discussions of payment. When is it the right time to discuss matters about money? By Nimroth Gwetsa, 30 September 2016.

As indicators point to an economic performance decline, more customers increasingly become circumspect in their spending. Likewise, companies are increasingly becoming too risk-averse, demanding upfront payment to mitigate risks.

We are advised to build wealth in difficult times. We would do well heeding the advice.

More discerning customers can get valuables at a bargain during seasons of poor economic performance. Such seasons are also conducive for businesses to retain and acquire new customers.

For the parties to succeed, there needs to be increased understanding and a display of appropriate behaviour befitting of prevailing conditions to foster required success in their interactions.

Customers desiring solutions (service and/ or product) need to understand that because of the prevailing economic hardship, it might be necessary some deposit is paid. Paying deposit indicates the customer’s commitment to the solution and understanding of its impact on the service provider’s working capital.

Service providers also need to understand that customers may need to limit their exposure to the risk of paying upfront without some guarantee for delivery. The customer’s reluctance to pay upfront may be due to concerns about costly measures of seeking recourse in case of failure to deliver services.

Whether buying a car with additional specifications, or customised furniture or making a doctor’s consultation, requests for upfront payment can be expected.

Misgivings about upfront payment may be owing to the following concerns:

• Confidence – Sustainability of relationships depends on trust between the parties. In that case, are parties reputed to be honourable, or is the relationship new?
• Capacity – What resources and capabilities are available to enable provision of the solution?
• Supply and demand – How much is the solution (service and/ or product) for a niche or mass market?
• Quality versus quantity – In the provision of the solution, is the focus on providing temporary or longer term relief?
• Vocation – What drives you and how passionate and motivated are you about your offerings and provision of the solution than it is about the amount of profit to be made?
• Collateral – What is the ease with which either party could have recourse or access to protection against delivery failures?
• Criticality – What is the importance and urgency of providing the solution needed?

Trust and capacity are the two main concerns about upfront payment requests.

The lack of trust could be owing to bad experiences or the relationship between the parties being new.

Constraints in capacity necessitate additional outlay of resources for which the solution provider may be unwilling to incur without the customer providing some collateral. While rightly understandable for the service provider to have such expectations, if not handled correctly, upfront payment requests could prematurely end the relationship with the customer.

Trust and capacity concerns affect smaller business more significantly. On the one hand, some customers ignore the impact on small businesses for the provision of the solution needed. On the other, small businesses fail to understand or know their customers and sometimes treat them with distrust. This alienates more serious and worthy customers who could exercise their discretion by getting services elsewhere.

At the heart of the poor start and discontentment are poor communication and handling of expectations, unprofessionalism and lack of diplomacy.

There’s nothing wrong with requests for upfront payment. The mistake service providers make is giving the customer an impression that they were not listened to, nor their problem and needs well understood.

To appreciate this concern, imagine a patient visiting a doctor not seen before in an emergency and explaining the symptoms and the problem experienced. And instead of the doctor probing more about the symptoms, showing understanding of the issues, reassuring and explaining the treatment plan in detail, the doctor starts talking about upfront payment. How do you suppose the patient would feel about the doctor’s behaviour? Surely, this would leave a bitter taste in the mouth of the patient. Even if that doctor is good, the patient’s trust might be dented by the doctor’s apparent selfishness. The doctor might lose a good patient after all.

In the above example, had the doctor spent time listening and explaining issues to the patient, showing compassion and being passionate about their work, it would have been wrong for the patient to be discontented about payment plan discussions.

The lesson here is that all businesses need to show deeper understanding and appreciation of the customer’s problem first, then reflect on the requirements for a solution, thereafter honestly assess own capabilities for providing the required solution. Only then and once all these issues have been discussed and well understood by the parties can discussions move on to the next steps and payment expectations.

Even then, parties need to agree on the quantum of the required payment. After all, business is not about pushing products and services, but more about building and sustaining human relationships and improving the welfare of affected people.

As small business owners, we must not allow periods of poor earnings overshadow our need to remain professional and focused on our core offerings. Our focus should primarily be set on fulfilling our entrepreneurship objectives. We should remain focused on our customers and remembering that in serving them, they too will serve our financial needs.

To overcome fear and setbacks of poor payment, it is best companies set aside some of its profits to spend on social responsibility initiatives. A company without concern about the society’s welfare and general human development will be the target of misfortunes and be doomed. This is not some feel good motivational statement, but the reality that society today appreciates socially conscious capitalists more than pure capitalists. Businesses that genuinely address the plight of human beings without expectations of direct reward from beneficiaries often do better than those focusing only on themselves.

The pain of poor payments and product returns can best be overcome by looking at such losses as the company’s contribution to social responsibility courses. This doesn’t mean the company should abandon available recourse to recoup their losses. The idea is to minimise disruptions to business operations and efforts to building a more credible customer base.

Fear has always been the rewarding antidote for entrepreneurs. Unless your company is the mint, let making money be the secondary reason for being in business.