Design Business by the Numbers: One-Percent Prepayment Discounts

This is a post in an occasional series I'll be running on ChangeOrder about the benchmarks that design businesses use to help maintain their long-term success. These benchmarks are drawn from the research that I conducted when writing Success by Design: The Essential Business Reference for Designers.

In my previous post, I wrote about how it's important to encourage new clients to pay you in advance of providing design services. Many designers and studio owners struggle to put this advice into practice, as their clients often have their own accounting and bookkeeping policies that conflict with paying for services in advance of their completion.

So, how do you bend these policies in your favor? A number of studio owners shared with me the following line of text that they had included in the estimates and invoices they'd provided to their clients: "Client shall receive an % discount if payment is received in advance of date."

That's right. Many companies have policies that require advance payment of an invoice if there's a discount. It doesn't have to be a huge discount, too—sometimes as little as one to two percent off a large-ticket project can be enough to encourage advance payment. (Though I've seen it at anywhere from 2.5% to 5% in previous agencies I've worked at.)

Highlighting this clause during contract negotiations will help you, as long as you preserve your profit margin for the project if the discount is exercised.

Other posts in this series include:

• Extending Zero Credit
• 80/20 Rule of New Business Development
• 3% Proposal Percentages
• 50% Bid/Win Ratios